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Convergence or Divergence? Two Contrasting Pictures

19 January, 2016 - 16:50
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Convergence is a very pretty theory but is it borne out by the evidence? ***Figure 6.9 "Some Evidence of Convergence" shows the growth experience of several countries in the second half of the 20th century. These countries are all members of the Organisation for Economic Cooperation and Development (OECD) and are, relatively speaking, rich. [***The countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Iceland, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Switzerland, and the United States. The median real GDP per capita in 1950 for these countries was about $6,000, in year 1996 dollars. Data for Figure 6.9 "Some Evidence of Convergence" and Figure 6.10 "Some Evidence of Divergence" come from Alan Heston, Robert Summers, and Bettina Aten, “Penn World Table Version 6.2,” Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania, September 2006, accessed June 29, 2011,http://pwt.econ.upenn.edu/php_site/pwt_index.php.***]Figure 6.9 "Some Evidence of Convergence" shows real GDP per person in these countriesrelative to the United States (the United States itself is the horizontal line near the top of the figure.) ***Figure 6.9 "Some Evidence of Convergence" does show some evidence of convergence. Countries with higher levels of real GDP person in 1950 tended to grow more slowly than countries with lower levels of real GDP per person. Poorer countries in this group tended to catch up with richer countries.
Figure 6.9  
 
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Figure 6.10 Figure 6.9 Some Evidence of Convergence 
The growth experience of 16 relatively developed countries, measured as real GDP per person relative to the level in the United States, shows considerable evidence of convergence. 

So far so good. But ***Figure 6.10 "Some Evidence of Divergence" shows the growth experience over the same period for a more diverse group of countries. This group is largely composed of poorer countries. The picture here is very different: we do not see convergence. There is no evidence that the poorer countries are growing faster than the richer countries. In some cases, there even appears to be divergence: poor countries growing more slowly than rich countries so that output levels in rich and poor countries move further apart.

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Figure 6.11 Figure 6.10 Some Evidence of Divergence  
In contrast to Figure 6.9 "Some Evidence of Convergence", the countries in this sample do not appear to be converging. Many countries that were poor in 1950 were just as poor, relatively speaking, in 2000. 

Table 6.5 "Evidence from Select Countries" shows more data for some of these countries. It lists the level of initial GDP per person and the average growth rate in GDP per person between the early 1950s and the end of the century. For example, Argentina had real GDP per person of $6,430 in 1950 (in year 1996 dollars) and grew at an average rate of 1.25 percent over the 50-year period. Egypt and South Korea had very close levels of GDP per person in the early 1950s, but growth in South Korea was much higher than that in Egypt: by the year 2000, GDP per person was $15,876 in South Korea but only $4,184 in Egypt. These two countries very clearly diverged rather than converged. Looking at China, the level of GDP per person in the early 1950s was less than 10 percent that of Argentina. By 2000, GDP per person in China was about 33 percent of that in Argentina.

Table 6.5 Evidence from Select Countries

Country (Starting Year)

Real GDP per Capita (Year 1996 US Dollars)

Percentage Average Growth Rate to 2000

Argentina (1950)

6,430

1.25

Egypt (1950)

1,371

2.33

China (1952)

584

4.0

South Korea (1953)

1,328

5.5

Source: Penn World Tables

Overall, this evidence suggests that our theory can explain the behavior over time of some but not all countries. If we look at relatively rich countries, then we do see evidence of convergence. Across broader groups of countries, we do not see convergence, and we see some evidence of divergence.

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