From Wikipedia, the free encyclopedia
The idea of convergence in economics (also sometimes known as the catch-up effect) is the hypothesis that poorer '
will tend to grow at faster rates than richer economies. As a result, all economies should eventually converge in terms of per capita income.
have the potential to grow at a faster rate than
(in particular, to ) are not as strong as in capital-rich countries. Furthermore, poorer countries can replicate the production methods, , and
of developed countries.
literature the term "convergence" can have two meanings. The first kind (sometimes called "sigma-convergence") refers to a reduction in the
of levels of income across economies. "Beta-convergence" on the other hand, occurs when poor economies grow faster than rich ones. Economists say that there is "conditional beta-convergence" when economies experience "beta-convergence" but conditional on other variables (namely the investment rate and the population growth rate) being held constant. They say that "unconditional beta-convergence" or "absolute beta-convergence" exists when the growth rate of an economy declines as it approaches its . According to , "in the twentieth century, the
peaked before the First World War and continued until the early 1970s, then, after two decades of indeterminate fluctuations, in the late 1980s it was replaced by the Great Convergence as the majority of Third World countries reached economic growth rates significantly higher than those in most First World countries", thus the present-day convergence should be regarded as a continuation of the .
The fact that a country is poor does not guarantee that catch-up growth will be achieved.
emphasised the need for 'Social Capabilities' to benefit from catch-up growth.
These include an ability to absorb new technology, attract capital and participate in global markets.
According to Abramovitz, these prerequisites must be in place in an economy before catch-up growth can occur, and explain why there is still divergence in the world today.
The theory also assumes that technology is freely traded and available to developing countries that are attempting to catch-up.
Capital that is expensive or unavailable to these economies can also prevent catch-up growth from occurring, especially given that capital is scarce in these countries.
This often traps countries in a low-efficiency cycle whereby the most efficient technology is too expensive to be acquired.
The differences in productivity techniques is what separates the leading developed nations from the following developed nations, but by a margin narrow enough to give the following nations an opportunity to catch-up.
This process of catch-up continues as long as the following nations have something to learn from the leading nations, and will only cease when the knowledge discrepancy between the leading and following nations becomes very small and eventually exhausted.
According to Professor , convergence is not occurring everywhere because of the closed economic policy of some developing countries, which could be solved through
and openness. In a study of 111 countries between 1970 and 1989, Sachs and Andrew Warner concluded that the industrialized countries had a growth of 2.3%/year/capita,
developing countries 4.5% and
developing countries only 2%.
stated the "" which is the observation that capital is not flowing from
despite the fact that developing countries have lower levels of capital per worker. This statement, however, has received recently serious objections.
There are many examples of countries which have converged with developed countries which validate the catch-up theory. Based on case studies on Japan, Mexico and other countries, Nakaoka studied social capabilities for industrialization and clarified features of human and social attitudes in the catching up process of Japan in Meiji era (). In the 1960s and 1970s the
rapidly converged with developed economies.
These include ,
- all of which are today considered developed economies.
In the post-war period () examples include ,
and , which were able to quickly regain their prewar status by replacing capital that was lost during .
Some economists criticise the theory, stating that
factors, such as government policy, are much more influential in economic growth than .
For example,
states that governments can substitute for missing prerequisites to trigger catch-up growth.
A hypothesis by economic historians
suggested that
are a central determinant of
that impedes institutional development in some countries.
Sokoloff and Engerman proposed that in the 19th century, countries such as Brazil and Cuba with rich factor endowments such as soil and climate are predisposed to a guarded franchise with limited institutional growth.
Land that is suitable for sugar and coffee such as Cuba experienced economies of scale from the establishment of plantation that in turn created the small elite families with vested interest in guarded franchise.
The exogenous suitability of land for wheat versus sugar determines the growth rate for many countries.
Therefore, countries with land that is suitable for sugar converge with other countries that also have land that is suitable for growing sugar.
Sokoloff and Engerman explained this convergence in their article "History Lessons: Institutions, Factor Endowments, and Paths of Development in the New World." They explained that the United States and Canada started out as two of the poorest colonies in the New World but grew faster than other countries as a result of their soil qualities. They argued that the United States and Canada had land suitable for growing wheat which meant that they had small scale farming, since wheat does not benefit from economies of scale, and this led to a relatively equal distribution of wealth and political power enabling the population to vote for broad public education. This differentiated them from countries such as Cuba that had land suitable for growing sugar and coffee. Such countries did benefit from economies of scale and so had large plantation agriculture with slave labor, large income and class inequalities, and limited voting rights. This difference in political power led to little spending on the establishment of institutions such as public schools and slowed down their progress. As a result, countries with relative equality and access to public education grew faster and were able to converge on countries with inequality and limited education.
- Absolute Convergence: Lower initial GDP will lead to a higher average growth rate. The implication of this is that poverty will ultimately disappear 'by itself'. It does not explain why some nations have had zero growth for many decades (e.g. in Sub-Saharan Africa)
- Conditional Convergence: A country's income per worker converges to a country-specific long-run level as determined by the structural characteristics of that country. The implication is that structural characteristics, and not initial national income, determine the long-run level of GDP per worker. Thus, foreign aid should focus on structure (infrastructure, education, financial system etc.) and there is no need for an income transfer from richer to poorer nations.
- Club Convergence: It is possible to observe different "clubs" or groups of countries with similar growth trajectories. Most importantly, several countries with low national income also have low growth rates. Thus, this is in contrast to the theory of conditional convergence, and would suggest that foreign aid should also include income transfers and that initial income does in fact matter for economic growth.
; see also .
"Vapaakauppa on kriiseist? huolimatta kasvun eliksiiri", ,
(the biggest newspaper in Finland)
(1990), "Why doesn't Capital Flow from Rich to Poor Countries?", , 80: 92–96
, Julia Zinkina, Justislav Bogevolnov, and Artemy Malkov. . Journal of Globalization Studies 2/2 (2011): 25–62.
, Zinkina J.
Nakaoka, T. (1987) On technological leaps of Japan as a developing country. Osaka City University Economic Review, 22, 1-25.
Nakaoka, T. (1994). The learning process and the market: the Japanese capital goods sector in the early twentieth century. LSE STICERD Research Paper No. JS271.
Nakaoka, T. (1996). Technology in Japan: From the Opening of Ports to the Start of the Postwar Economic Growth. Technological Development and Economic Systems: Japanese Experiences and Lessons: October 1–2, 1994, Tokyo, Japan.
Nakaoka, T. (Ed.) (1990) InternationalComparisonof Technological Formation-social capability of industrialization. Tokyo, Chikumashobo (Japanese).
Nakaoka, T. (1982) Science and technology in the history of modern Japan: imitation or endogenous creativity?
in A. Abdel-Malek, G. Blue and M. Pecujlic (Eds.) Science and Technology in the Transformation of the World, The United Nations University, 1982.  
Kenneth L. Sokoloff, Stanley L. Engerman. "History Lessons: Institutions, Factor Endowments, and Paths of Development in the New World". The Journal of Economic Perspectives Vol 14 No.3 (2000): pp. 217-232
John Matthews,
Catch-up strategies and the latecomer effect in industrial development. New Political Economy, 2006.
K. Sokoloff and S. Engerman, “Institutions, Factor Endowments, and Paths of Development in the New World,” Journal of Economic Perspectives, (Summer 2000), p. 217-32.
The Next Convergence by Michael Spence (Nobel Laureate, 2001)The Great ConvergenceInformation Technology and the New Globalization
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Between 1820 and 1990, the share of world income going to today&s wealthy nations soared from twenty percent to almost seventy. Since then, that share has plummeted to where it was in 1900. As Richard Baldwin explains, this reversal of fortune reflects a new age of globalization that is drastically different from the old.
In the 1800s, globalization leaped forward when steam power and international peace lowered the costs of moving goods across borders. This triggered a self-fueling cycle of industrial agglomeration and growth that propelled today&s rich nations to dominance. That was the Great Divergence. The new globalization is driven by information technology, which has radically reduced the cost of moving ideas across borders. This has made it practical for multinational firms to move labor-intensive work to developing nations. But to keep the whole manufacturing process in sync, the firms also shipped their marketing, managerial, and technical know-how abroad along with the offshored jobs. The new possibility of combining high tech with low wages propelled the rapid industrialization of a handful of developing nations, the simultaneous deindustrialization of developed nations, and a commodity supercycle that is only now petering out. The result is today&s Great Convergence.
Because globalization is now driven by fast-paced technological change and the fragmentation of production, its impact is more sudden, more selective, more unpredictable, and more uncontrollable. As The Great Convergence shows, the new globalization presents rich and developing nations alike with unprecedented policy challenges in their efforts to maintain reliable growth and social cohesion.
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