A new look at global growth convergence and divergence
Michele Battisti, Gianfranco di Vaio, Joseph Zeira 09 January 2014
A key question in economics is whether poor countries will automatically close the income gap with rich countries. However, different empirical methods yield different answers – growth regressions suggest convergence, whereas tests of distribution dynamics suggest divergence. This column discusses recent research that reconciles these two strands of the literature. It extends the benchmark growth regression model to include a parameter that determines the share of new technologies a country can adopt each year. The result is that, although each country converges to a growth path, the growth paths themselves may diverge.
The phenomenon of modern economic growth is fairly new. It started less than two centuries ago, but it changed our lives significantly. One of the main changes is that income gaps between countries have greatly increased. One of the main questions that concern economists who study economic growth is whether these gaps are still growing, or countries are instead converging to the same level of income. This question is empirical, but it has important theoretical implications, as our main growth theories predict convergence between countries.
Development Frontiers of economic research
growth, convergence, technology transfer, divergence
Long-term barriers to growth
Enrico Spolaore, Romain Wacziarg 03 October 2013
There is now widespread agreement that ‘deep’ history matters for comparative development. Recent research has shown that ancestry – the transmission of genetic and cultural traits across generations – matters more than the history of geographic regions. This column argues that long-term divergences in inherited traits can create barriers to the diffusion of technology. The greater a population’s genetic distance to the population on the technological frontier, the lower its relative income will be. Development policies should aim at reducing barriers to exchange and communication.
Students of comparative development have turned their focus to factors rooted deeper and deeper in history.
Development Economic history
development, growth, geography, Culture, technology transfer, ancestry
Offshoring and its effects on innovation in emerging economies
Ursula Fritsch, Holger Görg 23 September 2013
Outsourcing is a controversial practice. This column looks at its effects on firm-level innovation in emerging markets. The authors find robust evidence that outsourcing is positively related to various innovation measures. However, outsourcing only leads to increased R&D spending in countries where intellectual-property rights are well-protected.
Most empirical studies of the impact of outsourcing on firms look at industrialised countries. However, outsourcing is also common in emerging economies, and firms in middle-income countries split up their production processes similarly to firms in developed countries (see figures in Miroudot et al. (2009) on trade in intermediates). Recent research analyses the benefits to firms from outsourcing, focusing mainly on productivity and innovation effects. The latter are particularly important, since innovation is a key determinant of productivity improvements and – ultimately – growth.
International trade Productivity and Innovation
R&D, offshoring, innovation, international trade, emerging markets, outsourcing, technology transfer
International business travel and innovation: Face-to-face is crucial
Nune Hovhannisyan, Wolfgang Keller 20 April 2010
Volcano-linked flight restrictions have brought Europe’s business travel to a halt; does it matter? This column describes recent research that demonstrates that short-term cross-border travel is critical to technology transfer and innovation – crucial factors behind economic growth.
The high costs of international travel pose important questions about the value of short-term cross-border labour movements, specifically business travel. In the world of the Internet, e-mail, and video conferencing, why is business travel still so prevalent? Recent surveys show that business executives prefer face-to-face communication over other means of communication, as it plays a pivotal role in negotiating deals, selling products, and building long-term relationships with clients and co-workers (Harvard Business Review 2009, Forbes 2009).
Productivity and Innovation
innovation, technology transfer, flight restrictions, cross-border travel
Climate change and developing country growth
Michael Spence 11 September 2009
In fifty years, 3.4 billion people in developing countries will approach advanced country income levels with consumption, energy use, and emissions patterns to match. In this column, Nobel Laureate Michael Spence argues that advanced countries should lead the way with technology and a global strategy to reduce the carbon intensity of their economies. That will lay the groundwork for developing economies to follow a sustainable path as they graduate to higher income levels.
The climate change debate is extraordinarily complex because the issue is. Most agree that there remains considerable uncertainty about long-term temperature shifts.
growth, climate change, developing countries, technology transfer
The limits to offshoring
Wolfgang Keller, Stephen Yeaple 17 March 2009
What jobs are headed overseas? This column emphasises that the feasibility of offshoring tasks is heavily influenced by the costs of transferring technology and managing complex tasks. Offshoring may be less about lower factor costs and more about the race between technology transfers and trade costs.
Offshoring is the movement of jobs to other countries. While this may raise overall welfare, it means lower employment opportunities and possibly lower wages domestically. Offshoring is the major cause for the decline in self-reported work life quality in many countries. For example, in the US there are six workers that view offshoring negatively for every one worker that sees it as a positive influence (Pew Center 2006). Such a negative impression makes public policy backlash likely. No less important for the policy debate is offshoring’s prevalence.
International trade Labour markets
offshoring, trade costs, technology transfer, multinational companies