Convergence, Divergence, Persistence Flashcards
Theory of convergence
Workers in poor countries have low capital-to-worker ratios so productivity is low. Small increases in capital can lead to large productivity gains, piggybacking off already-developed technology at the technological frontier. In the Solow mode, if countries have the same savings rate, population growth rates and efficiency of labour, they will have the same steady state so differences in the capital stock would not matter in the long run. Also that modern tech is a public good, and other countries can and will assimilate
Eg. Germany post-WW2 still has the same steady state growth rate even though a lot of its capital stock was destroyed
Conditional convergence
Countries converge to their own steady states, determined by savings, population growth and human capital
Abramovitz
Growth rates of productivity in any long period tends to be inversely related to the initial levels of productivity. Caveats that ‘countries that are technologically backward have a potentiality for generating growth more rapid than that of more advanced countries, provided their social capabilities are sufficiently developed to permit successful exploitation of technologies already employed by technological leaders’
Baumol
Provides evidence for convergence among industrial nations since 1870; yet De Long critiques this, showing that the sample Baumol uses is ex post, i.e. countries that are industrialised are rich and have successfully developed, and so must have converged. This selection bias means that convergence is guaranteed in his theory
De Long
Examines ex ante sample and countries were well-placed to appropriate and utilise industrial technology - does not find convergence (excludes countries like Ireland and Norway). This was especially due to countries like Chile, Argentina, Spain and Portugal, which were not democracies - De Long hypothesised (but unsure) that only industrial nations with democratic systems converge. BUT De Long does not DISPROVE the theory of convergence
Baumol and Wolff
Respond to De Long’s response, admit critqiue is valid, but still find there has been convergence among productivity levels and per capita incomes of the richest industrial countries. Small groups of countries started to converge into clubs, but for groups as large as De Long’s, there was no convergence. Finds there is strong evidence of convergence in the upper income group, with weaker evidence of divergence among lower-income countries. Evidence for ‘convergence club’
Pritchett
Extends analysis to the entire world and finds evidence for significant divergence: 1870-1990 ratio of per capita incomes between the richest and poorest countries increased by a factor of five. Apart from Europe plus offshoots and Japan, other countries saw slower growth producing the divergence
Bairoch
Supports Pritchett, showing that there was almost no gap between the now developed countries and the developing countries as late as 1800. As a result, his estimate of the growth rate of the ‘developed’ world is 1.5 percent between 1870 and 1960 as opposed to .5 percent for the ‘developing’ world, which implies even larger divergence in per capita incomes than the lower bound assumptions that Pritchett (1997) argued for
Easterly and Levine
Places that had more Europeans during colonisation are richer today, arguing that Europeans brought growth-promoting characteristics: institutions, human capital, technology, norms etc. Estimate that 40% of current development outside Europe is associated with share of Europeans in colonial era. Once settlement was above 4.8%, adverse effects from extractive institutions are more than offset
Guiso et al
Culture important as a long-run mechanism. Places that had more freedom in the medieval period have better outcomes today. Northern Italy had better institutions than institutions in the south, which were controlled more by the mafia. The northern cities that experienced a period of independence in the medieval period saw 25% more voluntary associations eg. organ donations, lower level of cheating in exams
Nunn
Long-run effects of the slave trade on trust by measuring the number of slaves taken from a country and its economic performance today. Argues for institutional then cultural impacts - the slave trade shocked countries into a different equilibrium through institutions which hampered long-run growth
Gerschenkron
‘Advantage to backwardness’, which allows countries behind the technological frontier to experience episodes of rapid growth driven by rapid productivity catch-up
