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  • Research Highlights

The convergence hypothesis

April 6, 2020

Are poor countries catching up with rich countries?

Tyler Smith

convergence hypothesis helps explain why

The economies of today’s wealthiest nations raced ahead of the rest of the world about two centuries ago. That event initiated a new era in economic history, one defined by growth. 

More recently, countries like Japan seem to have successfully copied this playbook, and it appears others like China are following suit. But unfortunately those countries are the exception rather than the rule, according to a paper in the Journal of Economic Literature .

Authors Paul Johnson and Chris Papageorgiou found there’s little evidence that national economies are catching up to their richest peers. Most low-income countries haven’t been able to maintain what growth spurts they’ve had like traditional economic theory would predict.  

“The consensus that we find in the literature leads us to believe that poor countries, unless something changes, are destined to stay poor,” Johnson told the AEA in an interview.

In fact, slowdowns in the poorest countries have left millions in extreme poverty . Understanding which countries are catching up and how they’re doing so could help explain the elusive origins of economic growth.

The consensus that we find in the literature leads us to believe that poor countries, unless something changes, are destined to stay poor. Paul Johnson

The debate over catch-up growth—what economists have dubbed the convergence hypothesis —has a long history. The authors choose to focus on research published over the last 30 years. 

In this recent research, capital, technology, and productivity have been at the root of most understandings of economic growth and convergence. But that has traditionally led economists to conclude that however poor a country starts off, it will adopt the best practices of the rich countries and eventually be just as well-off as their forerunners.  

That’s the theory. But when the authors looked at the numbers over the last 60 years that’s not what they saw. 

Data from the Penn World Tables —which covers 182 countries—revealed an unprecedented level of global growth over the period, but it was spread unevenly across the globe and across income levels.

The researchers separated countries into three income levels: low, middle, and high. 

Each decade, high-income countries tended to grow faster than middle-income countries, which in turn tended to grow faster than low-income countries. 

Every group experienced periods of relatively slow growth. But low-income countries actually experienced negative average growth rates during the 80s and 90s. The contractions were mostly driven by periods of extreme violence, corruption, and other state dysfunctions. 

This unequal growth has led to steadily more and more dispersed national incomes around the world—the opposite of what a strong version of the convergence hypothesis predicts.

But while there wasn’t any absolute convergence, the researchers did find that the literature supported the idea of “convergence clubs.” In other words, countries that started with a similar income level in 1960 still had a similar income level in 2010, the end of the dataset.

convergence hypothesis helps explain why

The convergence clubs might be a clue for national leaders. According to Johnson, it suggests that policy interventions need to be bold enough to reach the next rung in the income ladder, or they risk slow, start-and-stop growth.

It also might help make sense of why some countries jump out of low-income clubs and eventually join the richest one, while other countries are stuck in poverty or middle-income traps.

Still other types of convergence are possible. Previous work has found that within some industries, such as manufacturing, convergence is happening. Countries may need to organize their workforces around these sectors to jumpstart growth. 

As the authors point out, even half a century is short compared to the long run. The limited data span may mean that pessimism isn’t ultimately warranted, but the authors’ work warns against being complacent.

“There have been signs of a little catch-up over the last few years . . . but we don't know if that will continue,” Johnson said.

“ What Remains of Cross-Country Convergence? ” appears in the March issue of the  Journal of Economic Literature.

The Great Divergence

This video explains how technology diffusion contributes to the growing productivity gap between rich and poor countries.

Can pathogen concentrations explain which countries developed sooner?

A new unified growth model of the demographic transition

  • 20.4 Economic Convergence
  • Introduction
  • 1.1 What Is Economics, and Why Is It Important?
  • 1.2 Microeconomics and Macroeconomics
  • 1.3 How Economists Use Theories and Models to Understand Economic Issues
  • 1.4 How To Organize Economies: An Overview of Economic Systems
  • Key Concepts and Summary
  • Self-Check Questions
  • Review Questions
  • Critical Thinking Questions
  • Introduction to Choice in a World of Scarcity
  • 2.1 How Individuals Make Choices Based on Their Budget Constraint
  • 2.2 The Production Possibilities Frontier and Social Choices
  • 2.3 Confronting Objections to the Economic Approach
  • Introduction to Demand and Supply
  • 3.1 Demand, Supply, and Equilibrium in Markets for Goods and Services
  • 3.2 Shifts in Demand and Supply for Goods and Services
  • 3.3 Changes in Equilibrium Price and Quantity: The Four-Step Process
  • 3.4 Price Ceilings and Price Floors
  • 3.5 Demand, Supply, and Efficiency
  • Introduction to Labor and Financial Markets
  • 4.1 Demand and Supply at Work in Labor Markets
  • 4.2 Demand and Supply in Financial Markets
  • 4.3 The Market System as an Efficient Mechanism for Information
  • Introduction to Elasticity
  • 5.1 Price Elasticity of Demand and Price Elasticity of Supply
  • 5.2 Polar Cases of Elasticity and Constant Elasticity
  • 5.3 Elasticity and Pricing
  • 5.4 Elasticity in Areas Other Than Price
  • Introduction to Consumer Choices
  • 6.1 Consumption Choices
  • 6.2 How Changes in Income and Prices Affect Consumption Choices
  • 6.3 Behavioral Economics: An Alternative Framework for Consumer Choice
  • Introduction to Production, Costs, and Industry Structure
  • 7.1 Explicit and Implicit Costs, and Accounting and Economic Profit
  • 7.2 Production in the Short Run
  • 7.3 Costs in the Short Run
  • 7.4 Production in the Long Run
  • 7.5 Costs in the Long Run
  • Introduction to Perfect Competition
  • 8.1 Perfect Competition and Why It Matters
  • 8.2 How Perfectly Competitive Firms Make Output Decisions
  • 8.3 Entry and Exit Decisions in the Long Run
  • 8.4 Efficiency in Perfectly Competitive Markets
  • Introduction to a Monopoly
  • 9.1 How Monopolies Form: Barriers to Entry
  • 9.2 How a Profit-Maximizing Monopoly Chooses Output and Price
  • Introduction to Monopolistic Competition and Oligopoly
  • 10.1 Monopolistic Competition
  • 10.2 Oligopoly
  • Introduction to Monopoly and Antitrust Policy
  • 11.1 Corporate Mergers
  • 11.2 Regulating Anticompetitive Behavior
  • 11.3 Regulating Natural Monopolies
  • 11.4 The Great Deregulation Experiment
  • Introduction to Environmental Protection and Negative Externalities
  • 12.1 The Economics of Pollution
  • 12.2 Command-and-Control Regulation
  • 12.3 Market-Oriented Environmental Tools
  • 12.4 The Benefits and Costs of U.S. Environmental Laws
  • 12.5 International Environmental Issues
  • 12.6 The Tradeoff between Economic Output and Environmental Protection
  • Introduction to Positive Externalities and Public Goods
  • 13.1 Investments in Innovation
  • 13.2 How Governments Can Encourage Innovation
  • 13.3 Public Goods
  • Introduction to Labor Markets and Income
  • 14.1 The Theory of Labor Markets
  • 14.2 Wages and Employment in an Imperfectly Competitive Labor Market
  • 14.3 Market Power on the Supply Side of Labor Markets: Unions
  • 14.4 Bilateral Monopoly
  • 14.5 Employment Discrimination
  • 14.6 Immigration
  • Introduction to Poverty and Economic Inequality
  • 15.1 Drawing the Poverty Line
  • 15.2 The Poverty Trap
  • 15.3 The Safety Net
  • 15.4 Income Inequality: Measurement and Causes
  • 15.5 Government Policies to Reduce Income Inequality
  • Introduction to Information, Risk, and Insurance
  • 16.1 The Problem of Imperfect Information and Asymmetric Information
  • 16.2 Insurance and Imperfect Information
  • Introduction to Financial Markets
  • 17.1 How Businesses Raise Financial Capital
  • 17.2 How Households Supply Financial Capital
  • 17.3 How to Accumulate Personal Wealth
  • Introduction to Public Economy
  • 18.1 Voter Participation and Costs of Elections
  • 18.2 Special Interest Politics
  • 18.3 Flaws in the Democratic System of Government
  • Introduction to the Macroeconomic Perspective
  • 19.1 Measuring the Size of the Economy: Gross Domestic Product
  • 19.2 Adjusting Nominal Values to Real Values
  • 19.3 Tracking Real GDP over Time
  • 19.4 Comparing GDP among Countries
  • 19.5 How Well GDP Measures the Well-Being of Society
  • Introduction to Economic Growth
  • 20.1 The Relatively Recent Arrival of Economic Growth
  • 20.2 Labor Productivity and Economic Growth
  • 20.3 Components of Economic Growth
  • Introduction to Unemployment
  • 21.1 How Economists Define and Compute Unemployment Rate
  • 21.2 Patterns of Unemployment
  • 21.3 What Causes Changes in Unemployment over the Short Run
  • 21.4 What Causes Changes in Unemployment over the Long Run
  • Introduction to Inflation
  • 22.1 Tracking Inflation
  • 22.2 How to Measure Changes in the Cost of Living
  • 22.3 How the U.S. and Other Countries Experience Inflation
  • 22.4 The Confusion Over Inflation
  • 22.5 Indexing and Its Limitations
  • Introduction to the International Trade and Capital Flows
  • 23.1 Measuring Trade Balances
  • 23.2 Trade Balances in Historical and International Context
  • 23.3 Trade Balances and Flows of Financial Capital
  • 23.4 The National Saving and Investment Identity
  • 23.5 The Pros and Cons of Trade Deficits and Surpluses
  • 23.6 The Difference between Level of Trade and the Trade Balance
  • Introduction to the Aggregate Supply–Aggregate Demand Model
  • 24.1 Macroeconomic Perspectives on Demand and Supply
  • 24.2 Building a Model of Aggregate Demand and Aggregate Supply
  • 24.3 Shifts in Aggregate Supply
  • 24.4 Shifts in Aggregate Demand
  • 24.5 How the AD/AS Model Incorporates Growth, Unemployment, and Inflation
  • 24.6 Keynes’ Law and Say’s Law in the AD/AS Model
  • Introduction to the Keynesian Perspective
  • 25.1 Aggregate Demand in Keynesian Analysis
  • 25.2 The Building Blocks of Keynesian Analysis
  • 25.3 The Phillips Curve
  • 25.4 The Keynesian Perspective on Market Forces
  • Introduction to the Neoclassical Perspective
  • 26.1 The Building Blocks of Neoclassical Analysis
  • 26.2 The Policy Implications of the Neoclassical Perspective
  • 26.3 Balancing Keynesian and Neoclassical Models
  • Introduction to Money and Banking
  • 27.1 Defining Money by Its Functions
  • 27.2 Measuring Money: Currency, M1, and M2
  • 27.3 The Role of Banks
  • 27.4 How Banks Create Money
  • Introduction to Monetary Policy and Bank Regulation
  • 28.1 The Federal Reserve Banking System and Central Banks
  • 28.2 Bank Regulation
  • 28.3 How a Central Bank Executes Monetary Policy
  • 28.4 Monetary Policy and Economic Outcomes
  • 28.5 Pitfalls for Monetary Policy
  • Introduction to Exchange Rates and International Capital Flows
  • 29.1 How the Foreign Exchange Market Works
  • 29.2 Demand and Supply Shifts in Foreign Exchange Markets
  • 29.3 Macroeconomic Effects of Exchange Rates
  • 29.4 Exchange Rate Policies
  • Introduction to Government Budgets and Fiscal Policy
  • 30.1 Government Spending
  • 30.2 Taxation
  • 30.3 Federal Deficits and the National Debt
  • 30.4 Using Fiscal Policy to Fight Recession, Unemployment, and Inflation
  • 30.5 Automatic Stabilizers
  • 30.6 Practical Problems with Discretionary Fiscal Policy
  • 30.7 The Question of a Balanced Budget
  • Introduction to the Impacts of Government Borrowing
  • 31.1 How Government Borrowing Affects Investment and the Trade Balance
  • 31.2 Fiscal Policy and the Trade Balance
  • 31.3 How Government Borrowing Affects Private Saving
  • 31.4 Fiscal Policy, Investment, and Economic Growth
  • Introduction to Macroeconomic Policy around the World
  • 32.1 The Diversity of Countries and Economies across the World
  • 32.2 Improving Countries’ Standards of Living
  • 32.3 Causes of Unemployment around the World
  • 32.4 Causes of Inflation in Various Countries and Regions
  • 32.5 Balance of Trade Concerns
  • Introduction to International Trade
  • 33.1 Absolute and Comparative Advantage
  • 33.2 What Happens When a Country Has an Absolute Advantage in All Goods
  • 33.3 Intra-Industry Trade between Similar Economies
  • 33.4 The Benefits of Reducing Barriers to International Trade
  • Introduction to Globalization and Protectionism
  • 34.1 Protectionism: An Indirect Subsidy from Consumers to Producers
  • 34.2 International Trade and Its Effects on Jobs, Wages, and Working Conditions
  • 34.3 Arguments in Support of Restricting Imports
  • 34.4 How Governments Enact Trade Policy: Globally, Regionally, and Nationally
  • 34.5 The Tradeoffs of Trade Policy
  • A | The Use of Mathematics in Principles of Economics
  • B | Indifference Curves
  • C | Present Discounted Value
  • D | The Expenditure-Output Model

Learning Objectives

By the end of this section, you will be able to:

  • Explain economic convergence
  • Analyze various arguments for and against economic convergence
  • Evaluate the speed of economic convergence between high-income countries and the rest of the world

Some low-income and middle-income economies around the world have shown a pattern of convergence , in which their economies grow faster than those of high-income countries. GDP increased by an average rate of 2.7% per year in the 1990s and 1.7% per year from 2010 to 2019 in the high-income countries of the world, which include the United States, Canada, the European Union countries, Japan, Australia, and New Zealand.

Table 20.5 lists eight countries that belong to an informal “fast growth club.” These countries averaged GDP growth (after adjusting for inflation) of at least 5% per year in both the time periods from 1990 to 2000 and from 2010 to 2019. Since economic growth in these countries has exceeded the average of the world’s high-income economies, these countries may converge with the high-income countries. The second part of Table 20.5 lists the “slow growth club,” which consists of countries that averaged GDP growth of 2% per year or less (after adjusting for inflation) during the same time periods. The final portion of Table 20.5 shows GDP growth rates for the countries of the world divided by income. (Note that the reason there is no data for 2001–2009 is because of the Great Recession, which lasted from 2007–2009. Many country’s GDP shrank during these years.)

Each of the countries in Table 20.5 has its own unique story of investments in human and physical capital, technological gains, market forces, government policies, and even lucky events, but an overall pattern of convergence is clear. The low-income countries have GDP growth that is faster than that of the middle-income countries, which in turn have GDP growth that is faster than that of the high-income countries. Two prominent members of the fast-growth club are China and India, which between them have nearly 40% of the world’s population. Some prominent members of the slow-growth club are high-income countries like France, Germany, Italy, and Japan.

Will this pattern of economic convergence persist into the future? This is a controversial question among economists that we will consider by looking at some of the main arguments on both sides.

Arguments Favoring Convergence

Several arguments suggest that low-income countries might have an advantage in achieving greater worker productivity and economic growth in the future.

A first argument is based on diminishing marginal returns. Even though deepening human and physical capital will tend to increase GDP per capita, the law of diminishing returns suggests that as an economy continues to increase its human and physical capital, the marginal gains to economic growth will diminish. For example, raising the average education level of the population by two years from a tenth-grade level to a high school diploma (while holding all other inputs constant) would produce a certain increase in output. An additional two-year increase, so that the average person had a two-year college degree, would increase output further, but the marginal gain would be smaller. Yet another additional two-year increase in the level of education, so that the average person would have a four-year-college bachelor’s degree, would increase output still further, but the marginal increase would again be smaller. A similar lesson holds for physical capital. If the quantity of physical capital available to the average worker increases, by, say, $5,000 to $10,000 (again, while holding all other inputs constant), it will increase the level of output. An additional increase from $10,000 to $15,000 will increase output further, but the marginal increase will be smaller.

Low-income countries like China and India tend to have lower levels of human capital and physical capital, so an investment in capital deepening should have a larger marginal effect in these countries than in high-income countries, where levels of human and physical capital are already relatively high. Diminishing returns implies that low-income economies could converge to the levels that the high-income countries achieve.

A second argument is that low-income countries may find it easier to improve their technologies than high-income countries. High-income countries must continually invent new technologies, whereas low-income countries can often find ways of applying technology that has already been invented and is well understood. The economist Alexander Gerschenkron (1904–1978) gave this phenomenon a memorable name: “the advantages of backwardness.” Of course, he did not literally mean that it is an advantage to have a lower standard of living. He was pointing out that a country that is behind has some extra potential for catching up.

Finally, optimists argue that many countries have observed the experience of those that have grown more quickly and have learned from it. Moreover, once the people of a country begin to enjoy the benefits of a higher standard of living, they may be more likely to build and support the market-friendly institutions that will help provide this standard of living.

View this video to learn about economic growth across the world.

Arguments That Convergence Is neither Inevitable nor Likely

If the economy's growth depended only on the deepening of human capital and physical capital, then we would expect that economy's growth rate to slow down over the long run because of diminishing marginal returns. However, there is another crucial factor in the aggregate production function: technology.

Developing new technology can provide a way for an economy to sidestep the diminishing marginal returns of capital deepening. Figure 20.7 shows how. The figure's horizontal axis measures the amount of capital deepening, which on this figure is an overall measure that includes deepening of both physical and human capital. The amount of human and physical capital per worker increases as you move from left to right, from C 1 to C 2 to C 3 . The diagram's vertical axis measures per capita output. Start by considering the lowest line in this diagram, labeled Technology 1. Along this aggregate production function, the level of technology is held constant, so the line shows only the relationship between capital deepening and output. As capital deepens from C 1 to C 2 to C 3 and the economy moves from R to U to W, per capita output does increase—but the way in which the line starts out steeper on the left but then flattens as it moves to the right shows the diminishing marginal returns, as additional marginal amounts of capital deepening increase output by ever-smaller amounts. The shape of the aggregate production line (Technology 1) shows that the ability of capital deepening, by itself, to generate sustained economic growth is limited, since diminishing returns will eventually set in.

Now, bring improvements in technology into the picture. Improved technology means that with a given set of inputs, more output is possible. The production function labeled Technology 1 in the figure is based on one level of technology, but Technology 2 is based on an improved level of technology, so for every level of capital deepening on the horizontal axis, it produces a higher level of output on the vertical axis. In turn, production function Technology 3 represents a still higher level of technology, so that for every level of inputs on the horizontal axis, it produces a higher level of output on the vertical axis than either of the other two aggregate production functions.

Most healthy, growing economies are deepening their human and physical capital and increasing technology at the same time. As a result, the economy can move from a choice like point R on the Technology 1 aggregate production line to a point like S on Technology 2 and a point like T on the still higher aggregate production line (Technology 3). With the combination of technology and capital deepening, the rise in GDP per capita in high-income countries does not need to fade away because of diminishing returns. The gains from technology can offset the diminishing returns involved with capital deepening.

Will technological improvements themselves run into diminishing returns over time? That is, will it become continually harder and more costly to discover new technological improvements? Perhaps someday, but, at least over the last two centuries since the beginning of the Industrial Revolution, improvements in technology have not run into diminishing marginal returns. Modern inventions, like the internet or discoveries in genetics or materials science, do not seem to provide smaller gains to output than earlier inventions like the steam engine or the railroad. One reason that technological ideas do not seem to run into diminishing returns is that we often can apply widely the ideas of new technology at a marginal cost that is very low or even zero. A specific worker or group of workers must use a specific additional machine, or an additional year of education. Many workers across the economy can use a new technology or invention at very low marginal cost.

The argument that it is easier for a low-income country to copy and adapt existing technology than it is for a high-income country to invent new technology is not necessarily true, either. When it comes to adapting and using new technology, a society’s performance is not necessarily guaranteed, but is the result of whether the country's economic, educational, and public policy institutions are supportive. In theory, perhaps, low-income countries have many opportunities to copy and adapt technology, but if they lack the appropriate supportive economic infrastructure and institutions, the theoretical possibility that backwardness might have certain advantages is of little practical relevance.

Visit this website to read more about economic growth in India.

The Slowness of Convergence

Although economic convergence between the high-income countries and the rest of the world seems possible and even likely, it will proceed slowly. Consider, for example, a country that starts off with a GDP per capita of $40,000, which would roughly represent a typical high-income country today, and another country that starts out at $4,000, which is roughly the level in low-income but not impoverished countries like Indonesia, Guatemala, or Egypt. Say that the rich country chugs along at a 2% annual growth rate of GDP per capita, while the poorer country grows at the aggressive rate of 7% per year. After 30 years, GDP per capita in the rich country will be $72,450 (that is, $40,000 (1 + 0.02) 30 ) while in the poor country it will be $30,450 (that is, $4,000 (1 + 0.07) 30 ). Convergence has occurred. The rich country used to be 10 times as wealthy as the poor one, and now it is only about 2.4 times as wealthy. Even after 30 consecutive years of very rapid growth, however, people in the low-income country are still likely to feel quite poor compared to people in the rich country. Moreover, as the poor country catches up, its opportunities for catch-up growth are reduced, and its growth rate may slow down somewhat.

The slowness of convergence illustrates again that small differences in annual rates of economic growth become huge differences over time. The high-income countries have been building up their advantage in standard of living over decades—more than a century in some cases. Even in an optimistic scenario, it will take decades for the low-income countries of the world to catch up significantly.

Bring It Home

Calories and economic growth.

We can tell the story of modern economic growth by looking at calorie consumption over time. The dramatic rise in incomes allowed the average person to eat better and consume more calories. How did these incomes increase? The neoclassical growth consensus uses the aggregate production function to suggest that the period of modern economic growth came about because of increases in inputs such as technology and physical and human capital. Also important was the way in which technological progress combined with physical and human capital deepening to create growth and convergence. The issue of distribution of income notwithstanding, it is clear that the average worker can afford more calories in 2020 than in 1875.

Aside from increases in income, there is another reason why the average person can afford more food. Modern agriculture has allowed many countries to produce more food than they need. Despite having more than enough food, however, many governments and multilateral agencies have not solved the food distribution problem. In fact, food shortages, famine, or general food insecurity are caused more often by the failure of government macroeconomic policy, according to the Nobel Prize-winning economist Amartya Sen. Sen has conducted extensive research into issues of inequality, poverty, and the role of government in improving standards of living. Macroeconomic policies that strive toward stable inflation, full employment, education of women, and preservation of property rights are more likely to eliminate starvation and provide for a more even distribution of food.

Because we have more food per capita, global food prices have decreased since 1875. The prices of some foods, however, have decreased more than the prices of others. For example, researchers from the University of Washington have shown that in the United States, calories from zucchini and lettuce are 100 times more expensive than calories from oil, butter, and sugar. Research from countries like India, China, and the United States suggests that as incomes rise, individuals want more calories from fats and protein and fewer from carbohydrates. This has very interesting implications for global food production, obesity, and environmental consequences. Affluent urban India has an obesity problem much like many parts of the United States. The forces of convergence are at work.

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The Convergence Hypothesis: Types and Paths | Economic Growth

convergence hypothesis helps explain why

Let us make an in-depth study of the Convergence Hypothesis. After reading this article you will learn about: 1. Types of Convergence 2. Possible Paths of Convergence.

Types of Convergence :

There are three types of convergence unconditional convergence, conditional conver­gence and no convergence.

(i) Unconditional Convergence:

By unconditional convergence we mean that LDCs will ultimately catch up with the industrially advanced countries so that, in the long run, the standards of living throughout the world become more or less the same. The Solow model predicts unconditional convergence under certain special conditions. For example, let us suppose that different countries of the world differed mainly in their capital-labour ratios.

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Normally, rich countries have high capital-labour ratio and high levels of output per worker. By contrast, low income countries have low capital-labour ratios and low levels of output per worker. We also assume that two groups of countries are the same in all other respects such as saving rates, population growth rates and the production function.

If this is true then the Solow model predicts that, in spite of any differences in initial capital-labour ratios, all these countries will ultimately attain the same steady state. Differently put, if countries have the same fundamental characteristics, capital-labour ratios and living standards will uncon­ditionally converge, even though some countries may start from way behind.

(ii) Conditional convergence:

Even if countries differ in their saving rates, population growth rates and production functions (due to unequal access to technology) they will converge to different steady state with different capital-labour ratios and different standards of living in the long run. If countries differ in the fundamental characteristics, the Solow model predicts conditional convergence.

This means that standards of living will converge only within groups of countries having similar characteristics. For example, if there is conditional convergence, a low income country with a low saving rate may catch up, one day or the other, a richer country that also has a low saving rate, but it will never catch up a rich country that has a high saving rate.

One reason for this is that poor countries have less capital per worker and thus higher marginal products of capital than do rich countries. So savers in all countries will be able to earn the highest return by investing in poor countries. Eventually, borrowing abroad will allow initially poor countries’ capital-labour ratios and output per worker to be the same as in initially rich countries.

(iii) No convergence:

The third possibility is no convergence. This means that the low income countries will never catch up over time. Therefore living standards may even diverge due to widening income gap — the rich getting richer and poor getting poorer.

Possible Paths of Convergence :

In Fig. 4.14(a) and 4.14(b) we show the possible paths of convergence and divergence of per capita output. In Fig. 4.14(a) T r represents the steady state growth path of the rich country. The slope of this line represents the rate of growth for the poor country. Three options are open to them.

Here T p represents a steady state growth path in which the rich and poor countries grow at the same rate. A favourable shock at time t 0 leads to convergence of output per capita in rich and poor countries as shown by the steady state growth path T p .

An adverse shock that slows down the growth rate of the poor country in the short run but leads to the same steady state growth as in T p is indicated by the growth path T’ p . The dotted line indicates movement outside of steady state.

Fig 4.14(b) shows divergence between the rich and poor countries. T r and T represent the steady state growth paths of the rich and poor country. We find divergence of per capita outputs across two countries over time. Here the scenario is different.

Irrespective of favourable shock (T h ) or an adverse shock (T’ p ) the steady state growth rate is the same as in T p , and long-run income per capita in the rich country will increasingly diverge from that in the poor country. The solid lines in both diagrams are steady state paths whereas the dotted lines represent transitions to equilibrium in response to a shock.

The path T h in Fig 4.14(a) shows how absolute convergence — in the sense of the same growth rates as also the same growth path — occurs. This is a strong form of convergence. A weaker form of convergence — called conditional convergence — is depicted by the paths T’ p and T p which show the same growth rates but different growth paths among countries.

The vertical distance of the growth path of a poor country from that of a rich country represents income differences due to differences in underlying parameters such as savings rates and population growth.

Different Paths of Convergence

The developing countries can have free access to the technology developed by the pioneers. This implies that latecomers have a potential advantage over pioneers — an advantage of backwardness.

In the course of adopting and adapting new techniques, IRS appear in the guise of learning-by-doing. No doubt the firms which adopt new techniques find an improvement in efficiency following the adoption.

Hence, if firms in LDCs organise themselves so as to profit from the accumulated experienced as fully as do firms in developed countries and such improvements have a ceiling that is reached in finite time or cumulative output, as seems plausible, then catching up in that particular time of production with the technique in question will be complete.

Unfortunately from the point of view of the world’s low income countries there is hardly any empirical support for unconditional convergence. Most studies have found little tendency for low income countries to catch up with their rich counterparts.

Related Articles:

  • Solow Model of Economic Growth: Prediction and Theory
  • Convergence and Poor Countries: 3 Mechanisms | Economics
  • Solow’s Neoclassical Growth Model | Economic Growth | Economics
  • Economic Growth in Asian Countries

(1) Absolute Convergence (2) Conditional Convergence

Fig. 1 - Absolute Convergence
Fig. 2 - Conditional Convergence
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The Catchup Effect Definition and Theory of Convergence

convergence hypothesis helps explain why

What Is the Catch-Up Effect?

The catch-up effect is a theory that all economies will eventually converge in terms of per capita income, due to the observation that underdeveloped economies tend to grow more rapidly than wealthier economies. In other words, the less wealthy economies will literally "catch-up" to the more robust economies. The catch-up effect is also referred to as the theory of convergence .

Key Takeaways

  • The catch-up effect is a theory that developing economies will catch up to more developed economies in terms of per capita income.
  • It is based on the law of diminishing marginal returns , applied to investment at the national level, and the empirical observation that growth rates tend to slow as an economy matures.
  • Developing nations can enhance their catch-up effect by opening up their economy to free trade and developing "social capabilities," or the ability to absorb new technology, attract capital, and participate in global markets.

Understanding the Catch-Up Effect

The catch-up effect, or theory of convergence, is predicated on a couple of key ideas.

One is the law of diminishing marginal returns —the idea that as a country invests and profits, the amount gained from the investment will eventually decline as the level of investment rises. Each time a country invests, they benefit slightly less from that investment. So, returns on capital investments in capital-rich countries are not as large as they would be in developing countries.

This is backed up by the empirical observation that more developed economies tend to grow at a slower, though more stable, rate than less developed countries. According to the World Bank, high-income countries averaged 1.6% gross domestic product (GDP) growth in 2019, versus 3.6% for middle-income countries and 4.0% GDP growth in low-income countries.

Underdeveloped countries may also be able to experience more rapid growth because they can replicate the production methods, technologies, and institutions of developed countries. This is also known as a second-mover advantage. Because developing markets have access to the technological know-how of the advanced nations, they often experienced rapid rates of growth.

Limitations to the Catch-Up Effect

Although developing countries can see faster economic growth than more economically advanced countries, the limitations posed by a lack of capital can greatly reduce a developing country's ability to catch up. Historically, some developing countries have been very successful in managing resources and securing capital to efficiently increase economic productivity ; however, this has not become the norm on a global scale.

Economist Moses Abramowitz wrote about the limitations to the catch-up effect. He said that in order for countries to benefit from the catch-up effect, they would need to develop and leverage what he called "social capabilities." These include the ability to absorb new technology, attract capital, and participate in global markets. This means that if technology is not freely traded, or is prohibitively expensive, then the catch-up effect won't occur. 

The adoption of high-quality institutions, especially with respect to international trade, also plays a role. According to a longitudinal study by economists Jeffrey Sachs and Andrew Warner, national economic policies on free trade and openness are associated with more rapid growth. Studying 111 countries from 1970 to 1989, the researchers found that industrialized nations had a growth rate of 2.3% per year per capita, while developing countries with open trade policies had a rate of 4.5%, and developing countries with more protectionist and closed economy policies had a growth rate of only 2%.

Another major obstacle to the catch-up effect is that per capita income is not just a function of GDP, but also of a country's population growth. Less developed countries tend to have higher population growth than developed economies. According to the World Bank figures for 2019, more developed countries ( OECD members) experienced 0.5% average population growth, while the UN-classified least developed countries had an average 2.3% population growth rate.

Example of the Catch-Up Effect

During the period between 1911 to 1940, Japan was the fastest-growing economy in the world. It colonized and invested heavily in its neighbors South Korea and Taiwan, contributing to their economic growth as well. After the Second World War, however, Japan's economy lay in tatters.

The country rebuilt a sustainable environment for economic growth during the 1950s and began importing machinery and technology from the United States. It clocked incredible growth rates in the period between 1960 to the early 1980s.

Even as Japan's economy powered forward, the United States' economy, which was a source for much of Japan's infrastructural and industrial underpinnings, hummed along. Then by the late 1970s, when the Japanese economy ranked among the world's top five, its growth rate had slowed down.

The economies of the Asian Tigers , a moniker used to describe the rapid growth of economies in Southeast Asia, have followed a similar trajectory, displaying rapid economic growth during the initial years of their development, followed by a more moderate (and declining) growth rate as the economy transitions from a developing stage to that of being developed.

The World Bank. " GDP Growth (annual %) ." Accessed March 30, 2021.

Abramowitz, M. " Catching Up, Forging Ahead, Falling Behind ."  Journal of Economic History . 1986 June; 46(2): 385-406. Accessed March 30, 2021

Brookings Institution. " Economic Reform and the Process of Global Integration ." Accessed March 30, 2021

The World Bank. " Population Growth (annual %) ." Accessed March 30, 2021

convergence hypothesis helps explain why

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Chapter 20. Economic Growth

20.4 Economic Convergence

Learning objectives.

  • Explain economic convergence
  • Analyze various arguments for and against economic convergence
  • Evaluate the speed of economic convergence between high-income countries and the rest of the world

Some low-income and middle-income economies around the world have shown a pattern of convergence , in which their economies grow faster than those of high-income countries. GDP increased by an average rate of 2.7% per year in the 1990s and 2.3% per year from 2000 to 2008 in the high-income countries of the world, which include the United States, Canada, the countries of the European Union, Japan, Australia, and New Zealand.

Table 5 lists 10 countries of the world that belong to an informal “fast growth club.” These countries averaged GDP growth (after adjusting for inflation) of at least 5% per year in both the time periods from 1990 to 2000 and from 2000 to 2008. Since economic growth in these countries has exceeded the average of the world’s high-income economies, these countries may converge with the high-income countries. The second part of Table 5 lists the “slow growth club,” which consists of countries that averaged GDP growth of 2% per year or less (after adjusting for inflation) during the same time periods. The final portion of Table 5 shows GDP growth rates for the countries of the world divided by income.

Each of the countries in Table 5 has its own unique story of investments in human and physical capital, technological gains, market forces, government policies, and even lucky events, but an overall pattern of convergence is clear. The low-income countries have GDP growth that is faster than that of the middle-income countries, which in turn have GDP growth that is faster than that of the high-income countries. Two prominent members of the fast-growth club are China and India, which between them have nearly 40% of the world’s population. Some prominent members of the slow-growth club are high-income countries like the United States, France, Germany, Italy, and Japan.

Will this pattern of economic convergence persist into the future? This is a controversial question among economists that we will consider by looking at some of the main arguments on both sides.

Arguments Favoring Convergence

Several arguments suggest that low-income countries might have an advantage in achieving greater worker productivity and economic growth in the future.

A first argument is based on diminishing marginal returns. Even though deepening human and physical capital will tend to increase GDP per capita, the law of diminishing returns suggests that as an economy continues to increase its human and physical capital, the marginal gains to economic growth will diminish. For example, raising the average education level of the population by two years from a tenth-grade level to a high school diploma (while holding all other inputs constant) would produce a certain increase in output. An additional two-year increase, so that the average person had a two-year college degree, would increase output further, but the marginal gain would be smaller. Yet another additional two-year increase in the level of education, so that the average person would have a four-year-college bachelor’s degree, would increase output still further, but the marginal increase would again be smaller. A similar lesson holds for physical capital. If the quantity of physical capital available to the average worker increases, by, say, $5,000 to $10,000 (again, while holding all other inputs constant), it will increase the level of output. An additional increase from $10,000 to $15,000 will increase output further, but the marginal increase will be smaller.

Low-income countries like China and India tend to have lower levels of human capital and physical capital, so an investment in capital deepening should have a larger marginal effect in these countries than in high-income countries, where levels of human and physical capital are already relatively high. Diminishing returns implies that low-income economies could converge to the levels achieved by the high-income countries.

A second argument is that low-income countries may find it easier to improve their technologies than high-income countries. High-income countries must continually invent new technologies, whereas low-income countries can often find ways of applying technology that has already been invented and is well understood. The economist Alexander Gerschenkron (1904–1978) gave this phenomenon a memorable name: “the advantages of backwardness.” Of course, he did not literally mean that it is an advantage to have a lower standard of living. He was pointing out that a country that is behind has some extra potential for catching up.

Finally, optimists argue that many countries have observed the experience of those that have grown more quickly and have learned from it. Moreover, once the people of a country begin to enjoy the benefits of a higher standard of living, they may be more likely to build and support the market-friendly institutions that will help provide this standard of living.

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Arguments That Convergence Is neither Inevitable nor Likely

If the growth of an economy depended only on the deepening of human capital and physical capital, then the growth rate of that economy would be expected to slow down over the long run because of diminishing marginal returns. However, there is another crucial factor in the aggregate production function: technology.

The development of new technology can provide a way for an economy to sidestep the diminishing marginal returns of capital deepening. Figure 1 shows how. The horizontal axis of the figure measures the amount of capital deepening, which on this figure is an overall measure that includes deepening of both physical and human capital. The amount of human and physical capital per worker increases as you move from left to right, from C 1 to C 2 to C 3 . The vertical axis of the diagram measures per capita output. Start by considering the lowest line in this diagram, labeled Technology 1. Along this aggregate production function, the level of technology is being held constant, so the line shows only the relationship between capital deepening and output. As capital deepens from C 1 to C 2 to C 3 and the economy moves from R to U to W, per capita output does increase—but the way in which the line starts out steeper on the left but then flattens as it moves to the right shows the diminishing marginal returns, as additional marginal amounts of capital deepening increase output by ever-smaller amounts. The shape of the aggregate production line (Technology 1) shows that the ability of capital deepening, by itself, to generate sustained economic growth is limited, since diminishing returns will eventually set in.

The graph shows three upward arching lines that each represent a different technology. Improvements in technology lead to greater output per capita and deepened physical and human capital.

Now, bring improvements in technology into the picture. Improved technology means that with a given set of inputs, more output is possible. The production function labeled Technology 1 in the figure is based on one level of technology, but Technology 2 is based on an improved level of technology, so for every level of capital deepening on the horizontal axis, it produces a higher level of output on the vertical axis. In turn, production function Technology 3 represents a still higher level of technology, so that for every level of inputs on the horizontal axis, it produces a higher level of output on the vertical axis than either of the other two aggregate production functions.

Most healthy, growing economies are deepening their human and physical capital and increasing technology at the same time. As a result, the economy can move from a choice like point R on the Technology 1 aggregate production line to a point like S on Technology 2 and a point like T on the still higher aggregate production line (Technology 3). With the combination of technology and capital deepening, the rise in GDP per capita in high-income countries does not need to fade away because of diminishing returns. The gains from technology can offset the diminishing returns involved with capital deepening.

Will technological improvements themselves run into diminishing returns over time? That is, will it become continually harder and more costly to discover new technological improvements? Perhaps someday, but, at least over the last two centuries since the Industrial Revolution, improvements in technology have not run into diminishing marginal returns. Modern inventions, like the Internet or discoveries in genetics or materials science, do not seem to provide smaller gains to output than earlier inventions like the steam engine or the railroad. One reason that technological ideas do not seem to run into diminishing returns is that the ideas of new technology can often be widely applied at a marginal cost that is very low or even zero. A specific additional machine, or an additional year of education, must be used by a specific worker or group of workers. A new technology or invention can be used by many workers across the economy at very low marginal cost.

The argument that it is easier for a low-income country to copy and adapt existing technology than it is for a high-income country to invent new technology is not necessarily true, either. When it comes to adapting and using new technology, a society’s performance is not necessarily guaranteed, but is the result of whether the economic, educational, and public policy institutions of the country are supportive. In theory, perhaps, low-income countries have many opportunities to copy and adapt technology, but if they lack the appropriate supportive economic infrastructure and institutions, the theoretical possibility that backwardness might have certain advantages is of little practical relevance.

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The Slowness of Convergence

Although economic convergence between the high-income countries and the rest of the world seems possible and even likely, it will proceed slowly. Consider, for example, a country that starts off with a GDP per capita of $40,000, which would roughly represent a typical high-income country today, and another country that starts out at $4,000, which is roughly the level in low-income but not impoverished countries like Indonesia, Guatemala, or Egypt. Say that the rich country chugs along at a 2% annual growth rate of GDP per capita, while the poorer country grows at the aggressive rate of 7% per year. After 30 years, GDP per capita in the rich country will be $72,450 (that is, $40,000 (1 + 0.02) 30 ) while in the poor country it will be $30,450 (that is, $4,000 (1 + 0.07) 30 ). Convergence has occurred; the rich country used to be 10 times as wealthy as the poor one, and now it is only about 2.4 times as wealthy. Even after 30 consecutive years of very rapid growth, however, people in the low-income country are still likely to feel quite poor compared to people in the rich country. Moreover, as the poor country catches up, its opportunities for catch-up growth are reduced, and its growth rate may slow down somewhat.

The slowness of convergence illustrates again that small differences in annual rates of economic growth become huge differences over time. The high-income countries have been building up their advantage in standard of living over decades—more than a century in some cases. Even in an optimistic scenario, it will take decades for the low-income countries of the world to catch up significantly.

Calories and Economic Growth

The story of modern economic growth can be told by looking at calorie consumption over time. The dramatic rise in incomes allowed the average person to eat better and consume more calories. How did these incomes increase? The neoclassical growth consensus uses the aggregate production function to suggest that the period of modern economic growth came about because of increases in inputs such as technology and physical and human capital. Also important was the way in which technological progress combined with physical and human capital deepening to create growth and convergence. The issue of distribution of income notwithstanding, it is clear that the average worker can afford more calories in 2014 than in 1875.

Aside from increases in income, there is another reason why the average person can afford more food. Modern agriculture has allowed many countries to produce more food than they need. Despite having more than enough food, however, many governments and multilateral agencies have not solved the food distribution problem. In fact, food shortages, famine, or general food insecurity are caused more often by the failure of government macroeconomic policy, according to the Nobel Prize-winning economist Amartya Sen. Sen has conducted extensive research into issues of inequality, poverty, and the role of government in improving standards of living. Macroeconomic policies that strive toward stable inflation, full employment, education of women, and preservation of property rights are more likely to eliminate starvation and provide for a more even distribution of food.

Because we have more food per capita, global food prices have decreased since 1875. The prices of some foods, however, have decreased more than the prices of others. For example, researchers from the University of Washington have shown that in the United States, calories from zucchini and lettuce are 100 times more expensive than calories from oil, butter, and sugar. Research from countries like India, China, and the United States suggests that as incomes rise, individuals want more calories from fats and protein and fewer from carbohydrates. This has very interesting implications for global food production, obesity, and environmental consequences. Affluent urban India has an obesity problem much like many parts of the United States. The forces of convergence are at work.

Key Concepts and Summary

When countries with lower levels of GDP per capita catch up to countries with higher levels of GDP per capita, the process is called convergence. Convergence can occur even when both high- and low-income countries increase investment in physical and human capital with the objective of growing GDP. This is because the impact of new investment in physical and human capital on a low-income country may result in huge gains as new skills or equipment are combined with the labor force. In higher-income countries, however, a level of investment equal to that of the low income country is not likely to have as big an impact, because the more developed country most likely has high levels of capital investment. Therefore, the marginal gain from this additional investment tends to be successively less and less. Higher income countries are more likely to have diminishing returns to their investments and must continually invent new technologies; this allows lower-income economies to have a chance for convergent growth. However, many high-income economies have developed economic and political institutions that provide a healthy economic climate for an ongoing stream of technological innovations. Continuous technological innovation can counterbalance diminishing returns to investments in human and physical capital.

Self-Check Questions

  • Use an example to explain why, after periods of rapid growth, a low-income country that has not caught up to a high-income country may feel poor.
  • A weak economy in which businesses become reluctant to make long-term investments in physical capital.
  • A rise in international trade.
  • A trend in which many more adults participate in continuing education courses through their employers and at colleges and universities.
  • What are the “advantages of backwardness” for economic growth?
  • Would you expect capital deepening to result in diminished returns? Why or why not? Would you expect improvements in technology to result in diminished returns? Why or why not?
  • Why does productivity growth in high-income economies not slow down as it runs into diminishing returns from additional investments in physical capital and human capital? Does this show one area where the theory of diminishing returns fails to apply? Why or why not?

Review Questions

  • For a high-income economy like the United States, what elements of the aggregate production function are most important in bringing about growth in GDP per capita? What about a middle-income country such as Brazil? A low-income country such as Niger?
  • List some arguments for and against the likelihood of convergence.

Critical Thinking Questions

  • What sorts of policies can governments implement to encourage convergence?
  • As technological change makes us more sedentary and food costs increase, obesity is likely. What factors do you think may limit obesity?

Central Intelligence Agency. “The World Factbook: Country Comparison: GDP–Real Growth Rate.” https://www.cia.gov/library/publications/the-world-factbook/rankorder/2003rank.html.

Sen, Amartya. “Hunger in the Contemporary World (Discussion Paper DEDPS/8).” The Suntory Centre: London School of Economics and Political Science . Last modified November 1997. http://sticerd.lse.ac.uk/dps/de/dedps8.pdf.

Answers to Self-Check Questions

  • A good way to think about this is how a runner who has fallen behind in a race feels psychologically and physically as he catches up. Playing catch-up can be more taxing than maintaining one’s position at the head of the pack.
  • No. Capital deepening refers to an increase in the amount of capital per person in an economy. A decrease in investment by firms will actually cause the opposite of capital deepening (since the population will grow over time).
  • There is no direct connection between and increase in international trade and capital deepening. One could imagine particular scenarios where trade could lead to capital deepening (for example, if international capital inflows which are the counterpart to increasing the trade deficit) lead to an increase in physical capital investment), but in general, no.
  • Yes. Capital deepening refers to an increase in either physical capital or human capital per person. Continuing education or any time of lifelong learning adds to human capital and thus creates capital deepening.
  • The advantages of backwardness include faster growth rates because of the process of convergence, as well as the ability to adopt new technologies that were developed first in the “leader” countries. While being “backward” is not inherently a good thing, Gerschenkron stressed that there are certain advantages which aid countries trying to “catch up.”
  • Capital deepening, by definition, should lead to diminished returns because you’re investing more and more but using the same methods of production, leading to the marginal productivity declining. This is shown on a production function as a movement along the curve. Improvements in technology should not lead to diminished returns because you are finding new and more efficient ways of using the same amount of capital. This can be illustrated as a shift upward of the production function curve.
  • Productivity growth from new advances in technology will not slow because the new methods of production will be adopted relatively quickly and easily, at very low marginal cost. Also, countries that are seeing technology growth usually have a vast and powerful set of institutions for training workers and building better machines, which allows the maximum amount of people to benefit from the new technology. These factors have the added effect of making additional technological advances even easier for these countries.

Principles of Economics Copyright © 2016 by Rice University is licensed under a Creative Commons Attribution 4.0 International License , except where otherwise noted.

What Is Convergence Theory?

How Industrialization Affects Developing Nations

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Convergence theory presumes that as nations move from the early stages of industrialization toward becoming fully industrialized , they begin to resemble other industrialized societies in terms of societal norms and technology.

The characteristics of these nations effectively converge. Ultimately, this could lead to a unified global culture if nothing impeded the process.

Convergence theory has its roots in the functionalist perspective of economics which assumes that societies have certain requirements that must be met if they are to survive and operate effectively. 

Convergence theory became popular in the 1960s when it was formulated by the University of California, Berkeley Professor of Economics Clark Kerr.

Some theorists have since expounded upon Kerr's original premise. They say industrialized nations may become more alike in some ways than in others.

Convergence theory is not an across-the-board transformation. Although technologies may be shared , it's not as likely that more fundamental aspects of life such as religion and politics would necessarily converge—though they may. 

Convergence vs. Divergence

Convergence theory is also sometimes referred to as the "catch-up effect."

When technology is introduced to nations still in the early stages of industrialization, money from other nations may pour in to develop and take advantage of this opportunity. These nations may become more accessible and susceptible to international markets. This allows them to "catch up" with more advanced nations.

If capital is not invested in these countries, however, and if international markets do not take notice or find that opportunity is viable there, no catch-up can occur. The country is then said to have diverged rather than converged.

Unstable nations are more likely to diverge because they are unable to converge due to political or social-structural factors, such as lack of educational or job-training resources. Convergence theory, therefore, would not apply to them. 

Convergence theory also allows that the economies of developing nations will grow more rapidly than those of industrialized countries under these circumstances. Therefore, all should reach an equal footing eventually.

Some examples of convergence theory include Russia and Vietnam, formerly purely communist countries that have eased away from strict communist doctrines as the economies in other countries, such as the United States, have burgeoned.

State-controlled socialism is less the norm in these countries now than is market socialism, which allows for economic fluctuations and, in some cases, private businesses as well. Russia and Vietnam have both experienced economic growth as their socialistic rules and politics have changed and relaxed to some degree.

Former World War II Axis nations including Italy, Germany, and Japan rebuilt their economic bases into economies not dissimilar to those that existed among the Allied Powers of the United States, the Soviet Union, and Great Britain.

More recently, in the mid-20th century, some East Asian countries converged with other more developed nations. Singapore , South Korea, and Taiwan are now all considered to be developed, industrialized nations.

Sociological Critiques

Convergence theory is an economic theory that presupposes that the concept of development is

  • a universally good thing
  • defined by economic growth.

It frames convergence with supposedly "developed" nations as a goal of so-called "undeveloped" or "developing" nations, and in doing so, fails to account for the numerous negative outcomes that often follow this economically-focused model of development.

Many sociologists, postcolonial scholars, and environmental scientists have observed that this type of development often only further enriches the already wealthy, and/or creates or expands a middle class while exacerbating the poverty and poor quality of life experienced by the majority of the nation in question.

Additionally, it is a form of development that typically relies on the over-use of natural resources, displaces subsistence and small-scale agriculture, and causes widespread pollution and damage to the natural habitat.

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Book cover

Development Patterns of Material Productivity pp 29–79 Cite as

Convergence: Theory, Econometrics, and Empirics

  • Larissa Talmon-Gros 2  
  • First Online: 25 November 2013

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Part of the Contributions to Economics book series (CE)

This chapter presents the theoretical background, the econometrics, and some empirical evidence with regard to convergence. Section 4.1 presents the basic Solow–Swan model, the starting point for analyses of convergence as well as the convergence properties in Schumpeterian models of endogenous growth. Section 4.2 discusses the econometric methods for examining convergence applied in this analysis. Those include growth regressions, (dynamic) panel approaches in terms of fixed effects models as well as panel unit root tests (Im, Pesaran, and Shin as well as Maddala and Wu/Choi). This chapter concludes with a review of empirics of convergence of different economic variables like for instance per capita income, labor productivity, energy productivity, or CO 2 emissions.

  • Capita Income
  • Total Factor Productivity
  • Balance Growth Path
  • Conditional Convergence
  • Club Convergence

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If initially k  = 0 it will remain zero. This possibility is ignored here.

For more details on the strong version of time series convergence, see Hemmer and Lorenz ( 2004 ).

For the following, see Breitung and Pesaran ( 2008 ).

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Talmon-Gros, L. (2014). Convergence: Theory, Econometrics, and Empirics. In: Development Patterns of Material Productivity. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-02538-4_4

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Economic Growth

Economic convergence, learning objectives.

By the end of this section, you will be able to:

  • Explain economic convergence
  • Analyze various arguments for and against economic convergence
  • Evaluate the speed of economic convergence between high-income countries and the rest of the world

Some low-income and middle-income economies around the world have shown a pattern of convergence , in which their economies grow faster than those of high-income countries. GDP increased by an average rate of 2.7% per year in the 1990s and 2.3% per year from 2000 to 2008 in the high-income countries of the world, which include the United States, Canada, the European Union countries, Japan, Australia, and New Zealand.

[link] lists 10 countries that belong to an informal “fast growth club.” These countries averaged GDP growth (after adjusting for inflation) of at least 5% per year in both the time periods from 1990 to 2000 and from 2000 to 2008. Since economic growth in these countries has exceeded the average of the world’s high-income economies, these countries may converge with the high-income countries. The second part of [link] lists the “slow growth club,” which consists of countries that averaged GDP growth of 2% per year or less (after adjusting for inflation) during the same time periods. The final portion of [link] shows GDP growth rates for the countries of the world divided by income.

Each of the countries in [link] has its own unique story of investments in human and physical capital, technological gains, market forces, government policies, and even lucky events, but an overall pattern of convergence is clear. The low-income countries have GDP growth that is faster than that of the middle-income countries, which in turn have GDP growth that is faster than that of the high-income countries. Two prominent members of the fast-growth club are China and India, which between them have nearly 40% of the world’s population. Some prominent members of the slow-growth club are high-income countries like France, Germany, Italy, and Japan.

Will this pattern of economic convergence persist into the future? This is a controversial question among economists that we will consider by looking at some of the main arguments on both sides.

Arguments Favoring Convergence

Several arguments suggest that low-income countries might have an advantage in achieving greater worker productivity and economic growth in the future.

A first argument is based on diminishing marginal returns. Even though deepening human and physical capital will tend to increase GDP per capita, the law of diminishing returns suggests that as an economy continues to increase its human and physical capital, the marginal gains to economic growth will diminish. For example, raising the average education level of the population by two years from a tenth-grade level to a high school diploma (while holding all other inputs constant) would produce a certain increase in output. An additional two-year increase, so that the average person had a two-year college degree, would increase output further, but the marginal gain would be smaller. Yet another additional two-year increase in the level of education, so that the average person would have a four-year-college bachelor’s degree, would increase output still further, but the marginal increase would again be smaller. A similar lesson holds for physical capital. If the quantity of physical capital available to the average worker increases, by, say, $5,000 to $10,000 (again, while holding all other inputs constant), it will increase the level of output. An additional increase from $10,000 to $15,000 will increase output further, but the marginal increase will be smaller.

Low-income countries like China and India tend to have lower levels of human capital and physical capital, so an investment in capital deepening should have a larger marginal effect in these countries than in high-income countries, where levels of human and physical capital are already relatively high. Diminishing returns implies that low-income economies could converge to the levels that the high-income countries achieve.

A second argument is that low-income countries may find it easier to improve their technologies than high-income countries. High-income countries must continually invent new technologies, whereas low-income countries can often find ways of applying technology that has already been invented and is well understood. The economist Alexander Gerschenkron (1904–1978) gave this phenomenon a memorable name: “the advantages of backwardness.” Of course, he did not literally mean that it is an advantage to have a lower standard of living. He was pointing out that a country that is behind has some extra potential for catching up.

Finally, optimists argue that many countries have observed the experience of those that have grown more quickly and have learned from it. Moreover, once the people of a country begin to enjoy the benefits of a higher standard of living, they may be more likely to build and support the market-friendly institutions that will help provide this standard of living.

View this video to learn about economic growth across the world.

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Arguments That Convergence Is neither Inevitable nor Likely

If the economy’s growth depended only on the deepening of human capital and physical capital, then we would expect that economy’s growth rate to slow down over the long run because of diminishing marginal returns. However, there is another crucial factor in the aggregate production function: technology.

Developing new technology can provide a way for an economy to sidestep the diminishing marginal returns of capital deepening. [link] shows how. The figure’s horizontal axis measures the amount of capital deepening, which on this figure is an overall measure that includes deepening of both physical and human capital. The amount of human and physical capital per worker increases as you move from left to right, from C 1 to C 2 to C 3 . The diagram’s vertical axis measures per capita output. Start by considering the lowest line in this diagram, labeled Technology 1. Along this aggregate production function, the level of technology is held constant, so the line shows only the relationship between capital deepening and output. As capital deepens from C 1 to C 2 to C 3 and the economy moves from R to U to W, per capita output does increase—but the way in which the line starts out steeper on the left but then flattens as it moves to the right shows the diminishing marginal returns, as additional marginal amounts of capital deepening increase output by ever-smaller amounts. The shape of the aggregate production line (Technology 1) shows that the ability of capital deepening, by itself, to generate sustained economic growth is limited, since diminishing returns will eventually set in.

The graph shows three upward arching lines that each represent a different technology. Improvements in technology lead to greater output per capita and deepened physical and human capital.

Figure 1. Capital Deepening and New Technology Imagine that the economy starts at point R, with the level of physical and human capital C1 and the output per capita at G1. If the economy relies only on capital deepening, while remaining at the technology level shown by the Technology 1 line, then it would face diminishing marginal returns as it moved from point R to point U to point W. However, now imagine that capital deepening is combined with improvements in technology. Then, as capital deepens from C1 to C2, technology improves from Technology 1 to Technology 2, and the economy moves from R to S. Similarly, as capital deepens from C2 to C3, technology increases from Technology 2 to Technology 3, and the economy moves from S to T. With improvements in technology, there is no longer any reason that economic growth must necessarily slow down.

Now, bring improvements in technology into the picture. Improved technology means that with a given set of inputs, more output is possible. The production function labeled Technology 1 in the figure is based on one level of technology, but Technology 2 is based on an improved level of technology, so for every level of capital deepening on the horizontal axis, it produces a higher level of output on the vertical axis. In turn, production function Technology 3 represents a still higher level of technology, so that for every level of inputs on the horizontal axis, it produces a higher level of output on the vertical axis than either of the other two aggregate production functions.

Most healthy, growing economies are deepening their human and physical capital and increasing technology at the same time. As a result, the economy can move from a choice like point R on the Technology 1 aggregate production line to a point like S on Technology 2 and a point like T on the still higher aggregate production line (Technology 3). With the combination of technology and capital deepening, the rise in GDP per capita in high-income countries does not need to fade away because of diminishing returns. The gains from technology can offset the diminishing returns involved with capital deepening.

Will technological improvements themselves run into diminishing returns over time? That is, will it become continually harder and more costly to discover new technological improvements? Perhaps someday, but, at least over the last two centuries since the beginning of the Industrial Revolution, improvements in technology have not run into diminishing marginal returns. Modern inventions, like the internet or discoveries in genetics or materials science, do not seem to provide smaller gains to output than earlier inventions like the steam engine or the railroad. One reason that technological ideas do not seem to run into diminishing returns is that we often can apply widely the ideas of new technology at a marginal cost that is very low or even zero. A specific worker or group of workers must use a specific additional machine, or an additional year of education. Many workers across the economy can use a new technology or invention at very low marginal cost.

The argument that it is easier for a low-income country to copy and adapt existing technology than it is for a high-income country to invent new technology is not necessarily true, either. When it comes to adapting and using new technology, a society’s performance is not necessarily guaranteed, but is the result of whether the country’s economic, educational, and public policy institutions are supportive. In theory, perhaps, low-income countries have many opportunities to copy and adapt technology, but if they lack the appropriate supportive economic infrastructure and institutions, the theoretical possibility that backwardness might have certain advantages is of little practical relevance.

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The Slowness of Convergence

Although economic convergence between the high-income countries and the rest of the world seems possible and even likely, it will proceed slowly. Consider, for example, a country that starts off with a GDP per capita of $40,000, which would roughly represent a typical high-income country today, and another country that starts out at $4,000, which is roughly the level in low-income but not impoverished countries like Indonesia, Guatemala, or Egypt. Say that the rich country chugs along at a 2% annual growth rate of GDP per capita, while the poorer country grows at the aggressive rate of 7% per year. After 30 years, GDP per capita in the rich country will be $72,450 (that is, $40,000 (1 + 0.02) 30 ) while in the poor country it will be $30,450 (that is, $4,000 (1 + 0.07) 30 ). Convergence has occurred. The rich country used to be 10 times as wealthy as the poor one, and now it is only about 2.4 times as wealthy. Even after 30 consecutive years of very rapid growth, however, people in the low-income country are still likely to feel quite poor compared to people in the rich country. Moreover, as the poor country catches up, its opportunities for catch-up growth are reduced, and its growth rate may slow down somewhat.

The slowness of convergence illustrates again that small differences in annual rates of economic growth become huge differences over time. The high-income countries have been building up their advantage in standard of living over decades—more than a century in some cases. Even in an optimistic scenario, it will take decades for the low-income countries of the world to catch up significantly.

Calories and Economic Growth

We can tell the story of modern economic growth by looking at calorie consumption over time. The dramatic rise in incomes allowed the average person to eat better and consume more calories. How did these incomes increase? The neoclassical growth consensus uses the aggregate production function to suggest that the period of modern economic growth came about because of increases in inputs such as technology and physical and human capital. Also important was the way in which technological progress combined with physical and human capital deepening to create growth and convergence. The issue of distribution of income notwithstanding, it is clear that the average worker can afford more calories in 2017 than in 1875.

Aside from increases in income, there is another reason why the average person can afford more food. Modern agriculture has allowed many countries to produce more food than they need. Despite having more than enough food, however, many governments and multilateral agencies have not solved the food distribution problem. In fact, food shortages, famine, or general food insecurity are caused more often by the failure of government macroeconomic policy, according to the Nobel Prize-winning economist Amartya Sen. Sen has conducted extensive research into issues of inequality, poverty, and the role of government in improving standards of living. Macroeconomic policies that strive toward stable inflation, full employment, education of women, and preservation of property rights are more likely to eliminate starvation and provide for a more even distribution of food.

Because we have more food per capita, global food prices have decreased since 1875. The prices of some foods, however, have decreased more than the prices of others. For example, researchers from the University of Washington have shown that in the United States, calories from zucchini and lettuce are 100 times more expensive than calories from oil, butter, and sugar. Research from countries like India, China, and the United States suggests that as incomes rise, individuals want more calories from fats and protein and fewer from carbohydrates. This has very interesting implications for global food production, obesity, and environmental consequences. Affluent urban India has an obesity problem much like many parts of the United States. The forces of convergence are at work.  

Key Concepts and Summary

When countries with lower GDP levels per capita catch up to countries with higher GDP levels per capita, we call the process convergence. Convergence can occur even when both high- and low-income countries increase investment in physical and human capital with the objective of growing GDP. This is because the impact of new investment in physical and human capital on a low-income country may result in huge gains as new skills or equipment combine with the labor force. In higher-income countries, however, a level of investment equal to that of the low income country is not likely to have as big an impact, because the more developed country most likely already has high levels of capital investment. Therefore, the marginal gain from this additional investment tends to be successively less and less. Higher income countries are more likely to have diminishing returns to their investments and must continually invent new technologies. This allows lower-income economies to have a chance for convergent growth. However, many high-income economies have developed economic and political institutions that provide a healthy economic climate for an ongoing stream of technological innovations. Continuous technological innovation can counterbalance diminishing returns to investments in human and physical capital.

Self-Check Questions

Use an example to explain why, after periods of rapid growth, a low-income country that has not caught up to a high-income country may feel poor.

Show Solution

Would the following events usually lead to capital deepening? Why or why not?

  • A weak economy in which businesses become reluctant to make long-term investments in physical capital.
  • A rise in international trade.
  • A trend in which many more adults participate in continuing education courses through their employers and at colleges and universities.

b. There is no direct connection between an increase in international trade and capital deepening. One could imagine particular scenarios where trade could lead to capital deepening (for example, if international capital inflows—which are the counterpart to increasing the trade deficit—lead to an increase in physical capital investment), but in general, no.

c. Yes. Capital deepening refers to an increase in either physical capital or human capital per person. Continuing education or any time of lifelong learning adds to human capital and thus creates capital deepening.

What are the “advantages of backwardness” for economic growth?

Would you expect capital deepening to result in diminished returns? Why or why not? Would you expect improvements in technology to result in diminished returns? Why or why not?

Why does productivity growth in high-income economies not slow down as it runs into diminishing returns from additional investments in physical capital and human capital? Does this show one area where the theory of diminishing returns fails to apply? Why or why not?

Review Questions

For a high-income economy like the United States, what aggregate production function elements are most important in bringing about growth in GDP per capita? What about a middle-income country such as Brazil? A low-income country such as Niger?

List some arguments for and against the likelihood of convergence.

Critical Thinking Questions

What sorts of policies can governments implement to encourage convergence?

As technological change makes us more sedentary and food costs increase, obesity is likely. What factors do you think may limit obesity?

Central Intelligence Agency. “The World Factbook: Country Comparison: GDP–Real Growth Rate.” https://www.cia.gov/library/publications/the-world-factbook/rankorder/2003rank.html.

Sen, Amartya. “Hunger in the Contemporary World (Discussion Paper DEDPS/8).” The Suntory Centre: London School of Economics and Political Science . Last modified November 1997. http://sticerd.lse.ac.uk/dps/de/dedps8.pdf.

  • Principles of Macroeconomics 2e. Provided by : OpenStax. Located at : http://cnx.org/contents/[email protected] . License : CC BY: Attribution . License Terms : Download for free at http://cnx.org/contents/[email protected]

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Court documents reveal names of powerful men allegedly linked to Jeffrey Epstein

Headshot of Brian Mann

Jaclyn Diaz

convergence hypothesis helps explain why

This March 28, 2017, image provided by the New York State Sex Offender Registry shows Jeffrey Epstein. New York State Sex Offender Registry via AP hide caption

This March 28, 2017, image provided by the New York State Sex Offender Registry shows Jeffrey Epstein.

Court documents made public on Wednesday disclosed the names of dozens of powerful men with alleged connections to convicted sex-trafficker Jeffrey Epstein, who died by suicide in 2019 .

Federal Judge Loretta Preska in Manhattan unsealed the documents, revealing the names of numerous individuals described in a 2015 civil lawsuit as associates, affiliates or victims of Epstein.

The documents include references to former Presidents Bill Clinton and Donald Trump, the magician David Copperfield, Prince Andrew, former Israeli Prime Minister Ehud Barak, actor Kevin Spacey, lawyer Alan Dershowitz, the late New Mexico Gov. Bill Richardson and former Vice President Al Gore, among others.

What to know about the Jeffrey Epstein 'John Doe' files that were just unsealed

What to know about the Jeffrey Epstein 'John Doe' files that were just unsealed

The fact that people were named in these documents doesn't mean any of them face allegations or evidence of wrongdoing.

Many of the most prominent individuals, including U.S. politicians, British royalty, tech tycoons and bankers, were already known to have links to Epstein because of previous court cases or disclosures in the media.

Most of those publicly named have denied any wrongdoing or knowledge of Epstein's criminal activities previously.

convergence hypothesis helps explain why

Britain's Prince Andrew, pictured in 2021, is listed as a close associate of Jeffrey Epstein. Steve Parsons/AP hide caption

Britain's Prince Andrew, pictured in 2021, is listed as a close associate of Jeffrey Epstein.

These troves of records do offer more details on a case that has drawn huge public attention and provide new, salacious allegations about these powerful men's behavior.

Federal prosecutors say Epstein — who worked for decades as a private financier for a secretive list of wealthy clients — also operated an underage sex-trafficking ring based in Manhattan and Palm Beach, Fla.

Epstein allegedly developed a scheme to identify and exploit "dozens" of vulnerable girls and young women, some as young as 14 years old, beginning around 1994 and continuing at least until 2004.

Some of his victims later claimed in civil lawsuits that Epstein instructed them to have sex with a who's-who of powerful men.

According to one suit filed in 2014 , Epstein arranged sexual encounters for "numerous prominent American politicians, powerful business executives, foreign presidents, a well-known Prime Minister, and other world leaders."

The more than three dozen documents naming Epstein's associates were compiled as part of a 2015 civil lawsuit filed by Virginia Giuffre, who claimed she was one of Epstein's underage victims.

One of the more notable names, former President Bill Clinton, is mentioned frequently in the documents.

They say that Clinton allegedly took a trip to Thailand with Epstein and include allegations from one witness who testified Epstein told her "Clinton likes them young, referring to girls."

Angel Ureña, a spokesman for Clinton, said it had been nearly 20 years since Clinton last had contact with Epstein and that the former president has never been accused of any wrongdoing. Ureña referred NPR to a previous statement made in 2019 on behalf of Clinton in response to allegations of ties to Epstein.

Growing suspicions as federal prosecutors delay prosecution

convergence hypothesis helps explain why

Labor Secretary Alexander Acosta resigned in 2019 after questions were raised about his role negotiating a federal non-prosecution deal for Jeffrey Epstein. Former President Trump has also acknowledged a long acquaintance with Epstein. Evan Vucci/AP hide caption

Labor Secretary Alexander Acosta resigned in 2019 after questions were raised about his role negotiating a federal non-prosecution deal for Jeffrey Epstein. Former President Trump has also acknowledged a long acquaintance with Epstein.

Local, state and federal authorities in Florida first investigated Epstein for alleged sexual activity involving minors as early as 2005.

Some women later claimed Epstein raped them repeatedly.

"I was forced into his car, taken to his mansion and raped," said Sarah Ransome in a 2021 interview with NPR . "He knew exactly where I was. It didn't matter where I was."

But after extensive negotiations with state and federal prosecutors, Epstein avoided federal prosecution. He was allowed to plead guilty to relatively minor state charges involving prostitution and prostitution involving a minor.

He was sentenced to serve just 18 months, much of it in a Florida work-release program.

After his release in 2009, Epstein, then a registered sex offender, continued to hobnob for nearly a decade with influential, powerful and wealthy people.

A Wall Street Journal investigation published last month found that after his conviction, Epstein was often accompanied "by attractive women in their late teens or twenties" to meetings with billionaires, celebrities and politicians.

In 2018, Epstein's world unraveled when the Miami Herald newspaper published an expose of Epstein's criminal activity and the legal deal-making that helped him avoid lengthier prison time.

Epstein, then 66 years old, was arrested in July 2019 on federal sex-trafficking charges. Justice Department officials say he took his own life in prison a month later while awaiting trial.

After Epstein's death, secrecy and growing conspiracy theories

convergence hypothesis helps explain why

Virginia Giuffre speaks during a news conference outside a Manhattan court in New York in August 2019. Bebeto Matthews/AP hide caption

Virginia Giuffre speaks during a news conference outside a Manhattan court in New York in August 2019.

The papers were sealed after the Giuffre case was settled in 2016 for an undisclosed amount of money.

The Miami Herald then waged a five-year legal battle to have all documents linked to the case made public.

According to the newspaper, thousands more pages will be released by the court in the coming days.

Posting on the social media platform X, formerly known as Twitter, Giuffre also praised Preska's decision to release the names.

"There's going to be a lot of nervous [people] over Christmas and New Years ... who's on the naughty list?" Giuffre wrote. "This wouldn't be possible without the Honorable Judge Preska."

The details released Wednesday offer a paper trail that points to alleged friendships and associations between Epstein and these notable figures, some of which allegedly continued on even after Epstein became a registered sex offender.

After Epstein's suicide, his case spawned a cascade of conspiracy theories .

As recently as this week, New York Jets quarterback Aaron Rogers suggested in a public appearance that talk show host Jimmy Kimmel might be named in the Epstein documents.

In a social media post, Kimmel fired back , saying he had no contact with Epstein and threatening to sue. "Your reckless words put my family in danger," Kimmel wrote.

Even without embellishment, it's clear Epstein's web of criminal activity operated in close proximity to some of the world's most influential individuals and institutions.

Flight manifests first published by the online journal Gawker show former President Clinton rode on Epstein's private plane more than a dozen times.

convergence hypothesis helps explain why

Former Presidents Bill Clinton and Donald Trump pose for photos in New York, July 6, 2009. Both associated with Jeffrey Epstein and have denied any awareness of his criminal activity. Ted Shaffrey/AP hide caption

Former Presidents Bill Clinton and Donald Trump pose for photos in New York, July 6, 2009. Both associated with Jeffrey Epstein and have denied any awareness of his criminal activity.

In a 2002 interview, Donald Trump told New York magazine that Epstein was a "great guy" and said they had known one another for 15 years.

"It is even said that he likes beautiful women as much as I do, and many of them are on the younger side," Trump said.

In a 2021 interview with CNN , Microsoft founder Bill Gates voiced regret for forming a connection with Epstein in the years after Epstein's 2008 conviction. "It was a huge mistake to spend time with him," Gates said.

According to Giuffre, she was instructed by Epstein to have sexual relations with a lengthy list of associates while she was still a minor.

In legal filings and depositions, she previously named billionaire Glenn Dubin, Prince Andrew, former New Mexico Gov. Richardson and computer scientist Marvin Minsky. All have denied any wrongdoing.

While Epstein and Maxwell alone faced criminal charges, the scandal has had widespread repercussions.

  • In 2019, then-U.S. Labor Secretary Alexander Acosta, appointed by Trump, abruptly resigned . According to the Justice Department, Acosta played a "pivotal" role while working as a U.S. attorney in 2008, negotiating a deal for Epstein that helped him avoid federal sex-trafficking charges. Acosta denied any wrongdoing. A DOJ probe later concluded that Acosta used "poor judgment" in the case.
  • In November 2021, Jes Staley, then head of U.K.-based Barclays Bank, resigned after it was revealed that he maintained close ties to Epstein after Epstein's 2008 conviction for sex crimes. In a May 2023 report, British officials concluded Staley acted "recklessly and with a lack of integrity" while misleading regulators about his friendship with Epstein. Staley has denied any wrongdoing.
  • In February 2022, Prince Andrew reached a settlement with Giuffre, saying in court documents that he "regrets his association with Epstein" and agreeing to make a "substantial donation to Ms. Giuffre's charity in support of victims' rights," according to a document filed by David Boies, an attorney for Giuffre.
  • In May 2023, Deutsche Bank agreed to pay $75 million to settle claims by Epstein's victims that the bank was liable for "supporting, facilitating, and otherwise providing the most critical service for the Jeffrey Epstein sex trafficking organization." The settlement included no admission of wrongdoing by Deutsche Bank.
  • In May 2023, attorneys for JPMorgan claimed in legal filings that government officials in the U.S. Virgin Islands, where Epstein maintained a home, "knew of and facilitated Epstein's crimes." However, the bank later agreed to pay $75 million to the Virgin Islands government to settle claims linked to Epstein's activity.
  • In June 2023, JPMorgan agreed to pay roughly $290 million into a settlement fund for victims, after serving for more than 15 years as Epstein's go-to bank. JPMorgan has denied any wrongdoing. "We all now understand that Epstein's behavior was monstrous," bank officials said in a statement sent to NPR.

NPR's David Gura and Ximena Bustillo contributed to this story.

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  1. Econ Practice Exam numero dos Flashcards

    The convergence hypothesis helps explain why: A) highly educated people converge in high-income countries. B) high-income individuals marry other high-income individuals. C) high-income countries continue their high growth rates. D) the income of high-income and lower-income countries get closer.

  2. The Convergence Hypothesis: History, Theory, and Evidence

    The hypothesis that per capita output converges across economies over time represents one of the oldest controversies in economics. This essay surveys the history and development of the hypothesis, focusing particularly on its vast literature since the mid-1980s.

  3. The convergence hypothesis

    Paul Johnson The debate over catch-up growth—what economists have dubbed the convergence hypothesis—has a long history. The authors choose to focus on research published over the last 30 years. In this recent research, capital, technology, and productivity have been at the root of most understandings of economic growth and convergence.

  4. Convergence (economics)

    The idea of convergence in economics (also sometimes known as the catch-up effect) is the hypothesis that poorer economies ' per capita incomes will tend to grow at faster rates than richer economies.

  5. 20.4 Economic Convergence

    Some low-income and middle-income economies around the world have shown a pattern of convergence, in which their economies grow faster than those of high-income countries.

  6. The Convergence Hypothesis: Types and Paths

    Possible Paths of Convergence: In Fig. 4.14 (a) and 4.14 (b) we show the possible paths of convergence and divergence of per capita output. In Fig. 4.14 (a) T r represents the steady state growth path of the rich country. The slope of this line represents the rate of growth for the poor country. Three options are open to them.

  7. Convergence Hypotheses

    The absolute convergence hypothesis, posits the following: consider a group of countries, ... But the conditional convergence hypothesis ought to help explain why countries with similar population growth rates (e.g. India and Nigeria) can converge to the same growth rates, albeit with different steady-state capital-labor ratios, and thus ...

  8. The Catchup Effect Definition and Theory of Convergence

    Catch-Up Effect: The catch-up effect is a theory speculating that poorer economies will tend to grow more rapidly than wealthier economies, and so all economies in time will converge in terms of ...

  9. 20.4 Economic Convergence

    Explain economic convergence Analyze various arguments for and against economic convergence Evaluate the speed of economic convergence between high-income countries and the rest of the world

  10. Growth Theories and Convergence Hypothesis

    Abstract In ancient Greek, the word theorein and its connected noun theoría link to observation, consideration and looking more closely at the subject matter; they simply lead to scientific contemplation and seeking truth. Today, in the context of highly specialized fields of science, seeking the eternal truth is not at stake.

  11. Convergence Theory

    Convergence theory presumes that as nations move from the early stages of industrialization toward becoming fully industrialized, they begin to resemble other industrialized societies in terms of societal norms and technology. The characteristics of these nations effectively converge.

  12. Reading: Theoretical Perspectives on Economics

    Convergence theory explains that as a country's economy grows, its societal organization changes to become more like that of an industrialized society. Rather than staying in one job for a lifetime, people begin to move from job to job as conditions improve and opportunities arise. ... This theory can be used to explain the prestige and ...

  13. Macroeconomics mid term2 Flashcards

    The convergence hypothesis helps explain why: the income of high-income countries and lower-income countries get closer. The costs that arise from the way inflation makes money a less reliable unit of measurement are: unit-of-account costs (also know: shoe-leather costs, menu costs, and medium of exchange costs)

  14. Econ 211 Exam 3 Mann UNL Flashcards

    The convergence hypothesis helps explain why the income of high-income and lower-income countries get closer. The economy has grown by 4% per year over the past 30 years. During the same period, the labor force has grown by 1% per year and the quantity of physical capital has grown by 5% per year.

  15. Solved 33. The convergence hypothesis helps explain why: a.

    The convergence hypothesis helps explain why: a. highly educated people converge in high-income countries. b. high-income individuals marry other high-income individuals. c. high-income countries continue their high growth rates. d. the income of high-income and lower-income countries get closer. 34. Assume a production function, Y = K'L'-.. Assume

  16. Module 19: Practice HW/Quiz Flashcards

    The convergence hypothesis helps explain why:

  17. Marco Economics Midterm 1 Part 3 Flashcards

    The convergence hypothesis helps explain why: A) highly educated people converge in high-income countries. B) high-income individuals marry other high-income individuals. C) high-income countries continue their high growth rates. D) the income of high-income and lower-income countries get closer. D.

  18. 251-260 Flashcards

    The convergence hypothesis helps explain why: the income of high-income and lower-income countries get closer. The East Asian countries have exhibited tremendous economic growth during the last 40 years because of all of the following EXCEPT: intervening governments with lots of regulations.

  19. ch. 9 Quiz- Josey Flashcards

    The convergence hypothesis helps explain why: the income of high-income and lower-income countries get closer. Holding the human capital per worker and technology unchanged, the estimated aggregate production function in Jamaica is Y / L = 50 × K / L, where Y = real output, L = number of workers, and K = quantity of physical capital.

  20. Convergence

    convergence, in mathematics, property (exhibited by certain infinite series and functions) of approaching a limit more and more closely as an argument (variable) of the function increases or decreases or as the number of terms of the series increases.. For example, the function y = 1/x converges to zero as x increases. Although no finite value of x will cause the value of y to actually become ...

  21. Convergence: Theory, Econometrics, and Empirics

    Abstract. This chapter presents the theoretical background, the econometrics, and some empirical evidence with regard to convergence. Section 4.1 presents the basic Solow-Swan model, the starting point for analyses of convergence as well as the convergence properties in Schumpeterian models of endogenous growth.

  22. Economic Convergence

    Some low-income and middle-income economies around the world have shown a pattern of convergence, in which their economies grow faster than those of high-income countries. GDP increased by an average rate of 2.7% per year in the 1990s and 2.3% per year from 2000 to 2008 in the high-income countries of the world, which include the United States ...

  23. Powerful men are named in court records with ties to Jeffrey Epstein

    Epstein, a convicted sex trafficker who took his own life in 2019, has been linked to some of the world's most powerful men. Names included in the court documents aren't evidence of wrongdoing.

  24. Solved The convergence hypothesis helps explains why: a)

    Final answer. The convergence hypothesis helps explains why: a) highly educated people converge in high-income countries. b) high-income countries continue their high growth rates. c) high-income countries tend to have slower growth rates compared to lower- income countries. O d) high-income individuals marry other high-income individuals.