Economic Convergence Flashcards
What is economic convergence?
Economic convergence refers to the hypothesis that poorer economies’ per capita incomes will tend to grow at faster rates than richer economies, eventually leading to a reduction in income disparities between countries.
What is the primary goal of convergence theory?
The primary goal of convergence theory is to explain how and why economic differences between developed and developing countries diminish over time.
What are the two main types of convergence discussed in economic growth theory?
The two main types of convergence are Beta Convergence and Sigma Convergence
Define Beta Convergence
It proposes that poorer countries (or regions of countries) growth faster than richer ones and therefore catch-up on them
The concept originates from Solow’s (1956) neoclassical growth theory, which postulates that factors of production, mainly capital, are subject to diminishing returns.
Define Sigma Conversion
It suggests that countries converge to their own steady-state levels of income per capita, which depend on country-specific factors like savings rates, population growth, and technology.
How does the Solow growth model explain economic convergence?
The Solow growth model explains economic convergence by suggesting that countries with lower initial levels of capital per worker grow faster than those with higher initial levels, leading to a narrowing of income differences over time.
What is one general weakness of “Beta” and “Sigma” convergence measures?
A general weakness is that they compare disparities within a group of countries rather than measuring the distance between specific countries, making it difficult to assess how far behind individual poor countries are compared to richer ones.
Can “Beta” and “Sigma” convergence measures compare how far behind poor countries are in different indicators?
No, “Beta” and “Sigma” convergence measures do not allow comparisons of lag across different indicators, so they cannot indicate which indicators require more attention due to a greater lag.
What is the “time lag” method in convergence analysis?
The “time lag” method measures how many years behind a developing country is in comparison to a developed country regarding a specific economic indicator, such as GDP per capita.
What does a positive time lag indicate?
It indicates that the developing country is behind the developed countries in terms of the specific indicator.
