Theory of Convergence and Real Income Divergence 1950-92
Economic and Political Weekly, Feb.20-26, 1999
Posted: 2 Oct 2007
This article examines whether the poor South is coming closer to the rich North in the process of evolution of the world economy since 1950 - whether the Veblen (1915)-Gerschenkron (1952) convergence/catching up hypothesis holds good along with the convergence implication of the neoclassical growth theory.The sample of 38 poor countries (called the South) studied here experienced a lower rate of growth in their average real income per capita (RGDPT) than what is experienced by the sample of 26 rich countries (called the North). Hence the gap in the standards of living between the two groups has been widening over the period of our study,1950-92. Between 1950 and 1992, the RGDPT of the South increased almost threefold - from $1087 in 1950 to $3027. During the same period, the RGDPT of the North increased almost fourfold - from $3548 in 1950, to $13047.
There is some diversity in individual country experiences. But there is one experience shared by most of the southern countries in the decade 1970s which was marked by the rise of OPEC and the optimism of the new international economic order. This was a temporary relief from the trend of divergence from the better standard of living of the North. Some countries even experienced a significant tendency towards convergence/catching up. So the overall picture of the 1970s is one of a catching up trend.
Another notable thing in individual country cases is the steady catching up experience of Korea and Thailand since the 1970s and of Taiwan since the 1960s. These countries belong to the category, 'major exporters of manufactures' (of the South). This experience is not shared by other countries belonging to the same category, such as Brazil, Mexico and Turkey.
Countries of the North experienced convergence among themselves. Bottom 16 countries of the North (RGDPT < $5,000) experienced a catching up of the average standard of living of the top nine countries (RGDPT >$5,000). In 1950, the average RGDPT of the top nine was more than double the RGDPT of the bottom 16. From $2,662 in 1950, the average RGDPT of the bottom 16 increased more than fourfold to reach the figure $12,204 in 1992 while the average RGDPT of top nine grew less than three times from $6,193 in 1950 $14,814 in 1992. Thus the standards of living of the two sub-groups of the North came much closer.
While Portugal, the poorest of the northern countries in 1950, had been coming closer to the average standard of living of the top nine of the North during the period of study, the southern countries richer than Portugal in 1950, did not share this experience. Rather, these southern countries came closer to the poorer South.
While the gap in the standards of living of the North and the South had been widening during the period of our study, there is some evidence of deceleration in the pace of divergence. Hence there is some hope that the gap will not widen indefinitely.
At the same time, the pace of bridging the gap between the top nine and bottom 16 of the north showed some sign of deceleration. If this trend continues, the process of convergence may come to a halt and some gap will remain.
Keywords: Convergence, divergence, Catching up, uneven developoment, poor countries, rich countries, North, South
JEL Classification: O10, O19, O50, F02, N10
Suggested Citation: Suggested Citation