A new look at global growth convergence and divergence
Michele Battisti, Gianfranco di Vaio, Joseph Zeira, 9 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.
Topics: Development, Frontiers of economic research
Tags: convergence, divergence, growth, technology transfer
Manufacturing is special
Dani Rodrik, 9 November 2011
Poor countries have access to world markets and rich countries’ technologies. In principle, they should catch up. Yet the record belies this expectation. But this column argues labour productivity in manufacturing displays a clear tendency towards convergence, unconditional on the countries’ institutions or policies. The policies that matter for growth are thus those that bear on the reallocation of labour from nonconvergence to convergence activities.
Poor countries have access to world markets, off-the-shelf technologies developed by others, and rich countries’ savings. So in principle, they should develop rapidly – more rapidly than advanced economies, which are already at the technological frontier. Yet the historical record belies this expectation.
Topics: Industrial organisation, Productivity and Innovation
Tags: convergence, growth, manufacturing, productivity
Dani Rodrik, 31 October 2011
If rich and poor countries have access to the same technology, shouldn't their productivity levels eventually converge? This would imply that poor countries should grow more quickly until they catch up – but such a tendency has never been proven. CEPR DP8631 shows that this convergence in output does in fact occur – but within manufacturing sectors rather than in economies as a whole.
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Topics: Development, Industrial organisation, Productivity and Innovation
Tags: convergence, GDP growth, manufacturing sector, productivity, technology
EMU has led to increased stability and convergence of financial markets in euro area
Michael Ehrmann, Marcel Fratzscher, Refet S. Gürkaynak, Eric T Swanson , 17 September 2007
The authors of DP6456 focus on the extent to which monetary union has led to the integration of financial markets across the euro area, and in particular investigate the effects of two dimensions: the unification of bond markets, and the anchoring of long-run inflation expectations.
One desired outcome at the time when EMU was conceived was having countries with less well-anchored expectations benefit from a more credible monetary policy-making framework.
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Topics: EU policies, Financial markets
Tags: anchoring, bond markets, convergence, credibility, EMU, euro area, monetary policy