Convergence or Divergence?

We’ve been looking at the level of economic development across countries in the world, we’ve been using the short hand of the gross domestic product per capita. One of the most important questions we want to know is whether today’s poor countries have the chance, and are indeed on a path to close the gap with the higher income countries.

We know that if they make that transition successfully It will raise their well being but it will also improve other aspects of life. The health, the life expectancy of the population, educational attainment, opportunities of the population more generally. We’re interested therefore both in understanding whether poor countries tend to narrow.  The development gap with richer countries. And from that normative or goal directed perspective were interested in how that can be achieved.

Economists use a couple of terms that are very important for this concept. The term convergence Is the term that is used to convey a narrowing of the proportionate gap of a poor country and a, a richer comparison country. Is the proportion of income per person in the poor country relative to the rich country Rising. Is the poor country closing that gap? If so, the poor country is said to be converging with the higher income country. The opposite is divergence.

Divergence means that the poor country, in relative terms, is becoming even Poorer when compared to the rich country. Maybe the poorer country is making progress, maybe it’s income per person is rising 1% per year. But if the richer country is making even faster economic growth, say 2% per year. Then the poorer country will have a declining relative size in gross domestic product per person relative to the higher income country.

So we want to study whether countries are converging or diverging. That will tell us a lot about, whether overall differences of material life, life expectancy, health, education levels, degree of urbanization, are tending to narrow between the rich and the poor countries, or tending to widen. I would say in this very complicated question with a very diverse record of now the 193 countries around the world.

So no one story line that fits all. We could say in broad terms that one part of the period of modern economic growth has. Tended to be characterized by a kind of divergence. And more recently, by a pattern of broad convergence.

What do I mean by that? We’re going to be studying how modern economic growth took off in the industrial revolution. And we know that until the Industrial Revolution began, most of the world was poor. Most of the world was rural. The gaps of, rich and poor countries were quite narrow, not like the huge gaps today. And then, a takeoff started with the Industrial Revolution. And with that take-off a certain part of the world a relatively small part of the world starting in England spreading to Great Britain more generally spreading to Western Europe the United States, Australia a very few other places initially experienced that industrialization.

In the first part of the 19th Century. Most of the rest of the world remained poor and rural, and the overall process was one of divergence. The rich were becoming richer because they were industrializing; the poor were like they always were. Eking out survival in peasant farming in most of the world. Relatively untouched by the new inventions of the steam engine, or the railroad, or the telegraph, or the other technological advances that helped to set off the process of long term economic growth.

One could say that the rich were getting richer. And the poor were kind of stuck at the bottom. And the relative gap between the two was tending to widen. Then came a huge political phenomenon. And that is the phenomenon of imperialism. Because as Western Europe became industrial and quite powerful, it took political control over more and more of the world. Will see that the British empire expand the world will see that other European powers. Took on more and more imperial possessions, notably in Africa and in Asia. This, I think, was a big set-back to the potential of convergens. Because, when countries are dominated by other countries, it’s very hard for those who are in that subservient position politically to undertake the kinds of steps improving the infrastructure of the country raising education levels that are crucial for achieving economic development, and often the imperial masters. Are not so interested in the economic development of their possesions, rather they’re interested in taking out as many of the resources of those countries as they can, for the development of their own home industries.

I think it’s fair to say, from the period of around 1850 to 1950 The world was broadly characterized by economic divergance, where a few parts of the world were becoming richer and richer, more and more industrialized, more and more millitarily powerful, other parts of the world were stuck in poverty and Many parts of the world were stuck as the imperial possessions, of, European imperial powers.

Of course, there was much history during that century and two devastating world wars. And at the end of the second world war, A quite different political dynamic, one very important for global economic development occurred, and that was the so-called end of the colonial era, and the decolonization of countries around the world who gained political independence. One of the bright spots of a political sovereignty, freedom from imperial domination was the ability of more and more countries to undertake economic development on their own. And many countries, when they got independence, said hey we’re far behind; now it’s our turn to industrialize We need to take crucial steps. Build roads, build rail. electrify, the countries, so that electrification provides a basis for industrial development. Attract industry. Both the domestic and foreign investors. So that we, too, can experience the process of economic development. And with that massive global political change, and with further technological developments, better transport, better communications, the new information age, that enabled. The poor countries of the world to pick up the pace of their economic development. And convergence that is faster economic growth in the poor countries became more of the usual condition that it had been in the years up to 1950.

Since the middle of the last century, therefore, the end of World War II, the end of the Imperial Age, the beginning of the economic development in many former colonies, we’ve seen a tendency towards conversions. And that is enabling more and more Low income countries to join the ranks of the middle income countries, and middle income countries to join the ranks of the high income countries.

One of the crucial goals of sustainable development is that all of today’s low income countries and especially the least developed countries remember the. 50 or so poorest and most vulnerable among the low income countries, should make that transition successfully through convergence to middle income status. And most of them, or perhaps all, have the goal of achieving high income status through their own economic development. One of our key goals is to understand how that process can work and what is it that impedes convergence among some countries.

When we look around the world today we see ample evidence of countries that were once poor achieving very rapid. A convergence. China is our most exemplary case. Astounding economic performance over roughly 35 years since 1978 when China began many important economic reforms that put it on a path of convergent growth. We also see parts of the world, today’s least developed countries, stuck in poverty, we’ll call that a poverty trap that is so tight, that they are not yet achieving economic conversions. Niger is an example of such a country. It is a land locked country in the Sahel region of Africa. You can see it on the map that it is a country just south of the Sahara Desert. It’s far from the coast. It’s one of the world’s poorest countries. It’s a country that’s just at the bottom of the world’s human development index, meaning that not only is it income poor but also it’s conditions of education and health, are very dire indeed. But not only has Niger had to suffer this kind of poverty It’s been stuck in a poverty trap for a long period. So unlike China, it has not been achieving economic conversions. Let’s look at at the numbers just as an example. We’ll measure the gross domestic product Per person, in purchasing power parody adjusted terms. Remember, taking into account different price levels across countries. If we look back at 1980, the per capita income in the prices of those days, in the United States was about $12,000 per person. In China about $250 per person, very poor. In the Niger, maybe even higher than China on the, official date at about $450 per person. Now let’s fast forward to the year 2010. What’s happened? China experienced decade after decade. Of double digit economic growth with the economy doubling every few years, every seven years on average. And that meant that by the time 2010 came around China was no longer at $250 per person. It was now at merely. $10,000 per person the United States by then at about $50,000 per person Niger unfortunately still stuck at below $1,000 per person and still among the least developed countries. If you ask the question about. Divergence and convergence China, went from being 2% of the U.S,. gross domestic product per person to being around, 20% of the us gross domestic product per person. Still. Far below the US income level, even adjusting for price level, but narrowing the gap very quickly. Niger sadly, started out at around 4% of the US per capita level, but by 2010, less than 2%. In other words, experiencing divergence rather than convergence.

One of our most important objectives in the coming talks will be to examine this process of convergence versus divergence to try to understand the underlying factor. And really to unlock the keys that can help today’s poorest countries get on a trajectory of convergence so that they too can have the improvements of material life, improvements of health, education, income per person that we know can be important component of improved well being.

---

---