Human Capital Flashcards
Define ‘convergence’
In economics, “convergence” refers to the idea that countries or regions with lower per-capita incomes will tend to grow faster than those with higher per-capita incomes, eventually leading to the narrowing of the gap between the two.
Define “conditional convergence”
The “conditional convergence” is based on the assumption that there are certain conditions that need to be met in order for convergence to occur
Define ‘absolute convergence’
The suggestion that all countries will eventually converge towards the same level of income and development, regardless of their initial conditions.
List reasons convergence could be argued to be conditional
- “democratic change” theory. (Chaney, 2012).
“Democratic change” theory
Chaney (2012)
The level of democracy in a country can have an impact on its economic development.
Chaney (2012)
“Democratic change” theory
Countries with more democratic systems tend to experience higher rates of economic growth and convergence.
Countries with less democratic systems tend to experience lower rates of economic growth and divergence.
Democratic systems > support the rule of law, property rights > institutions that promote economic development
“Convergence club” theory
According to this theory, there is a group of countries that tend to converge towards the same level of income and development, while other countries do not converge at all.
The “convergence club,” are characterized by similar institutional, cultural, and economic characteristics, such as a high level of education, a stable political system, and a strong market economy.
Glaeser et al (2004)
Economic growth and improvements in political institutions do not necessarily occur naturally or automatically, but rather depend on the presence of certain conditions.
Factors such as: the quality of political institutions, human and physical capital accumulation, and policies pursued by governments
How can poor countries escape poverty?
(Glaeser et al, 2004)
Poor countries can often escape poverty through good policies, even if these policies are implemented by dictators > these countries may improve their political institutions.
South Korea, Taiwan, and China > grew rapidly under one-party dictatorships > eventually turned to democracy
Thus, support the idea that growth can lead to better political institutions.
How does Glaeser et al (2004) disagree with Chaney’s democratic change theory?
Economic divergence could occur even under dictatorships.
From accumulating human and physical capital under dictatorships > become wealthier > more likely to improve their institutions.
“Human capital” theory
Convergence is conditional.
Countries with a higher level of human capital (such as education and skills) > grow faster and converge towards the same level of income and development.
i.e Rocha et al. (2017)
Rocha et al. (2017)
Human capital persistence (the ability of human capital to be transmitted from one generation to the next) is an important determinant of economic development.
I.e Brazil’s state-sponsored settlement policy
Give one example that proves that human capital persistence is an important determinant of economic development
(Rocha et al, 2017)
State-sponsored settlement policy > attracted immigrants with higher levels of schooling to certain regions of Brazil > resulted in long-term effects on those regions’ levels of schooling and income per capita.
Squicciarini and Voigtlander (2015)
‘Upper-tail human capital’ > important factor in the Industrial Revolution
- The presence of knowledge elites, or people with advanced skills > entrepreneurial capabilities + lower access costs to modern techniques > shift the production function > raise total factor productivity > higher output and economic growth.
Mokyr (2005)
The success of the Industrial Enlightenment was influenced by a range of intellectual, institutional, and cultural factors, as well as historical events and contingencies.
- Economic improvement was dependent on institutional progress to complement technological progress
