Convergence club
Convergence: GDP per capita - Western Europe & Western Offshoots30,000
25,000
Hale Waihona Puke Denmark 20,000 France Germany Italy 15,000 Sw itzerand United Kingdom Australia 10,000 Canada United States



Divergence

Modern economic growth:


Divergence in relative productivity levels and living standards. In the last century: income in the “less” developed countries have fallen far behind those in “developed” countries.
East Asian miracle

Features


Large exporters of manufactured goods of increasing sophistication. Highly urbanized and increasingly well-educated. High savings rates. Pro-business governments.

1000-1820


1820 onwards:

No consensus

Economic growth models have attempted to explain the change in growth rates but no consensus has emerged.
Regularities – modern times
Explaining modern growth
It’s human capital….
Some figures

Last millennium:

World population growth = 22-fold Income per capita growth = 13-fold World GDP growth = 300-fold Income per capita growth = 50% Life expectancy = 24 years Income per capita growth = 8-fold Life expectancy now = 66 years

Per capita output grows over time and its growth rate does not tend to diminish Physical capital per worker grows over time The shares of labor and physical capital in national income are nearly constant The growth rate of output per worker differs substantially across countries.
GDP per capita
30000 25000 20000 15000 10000 5000 0 1 1000 1500 1600 1700 1820 1900 1950 2000
1990 International Geary-Khamis dollars
Western Europe Western Offshoots Asia Africa World Latin America

Developed countries:


Strong convergence in per capita incomes within these countries No obvious acceleration of overall growth rates over time.
What we see in the data
5,000
0
18 70 18 76 18 82 18 88 18 94 19 00 19 06 19 12 19 18 19 24 19 30 19 36 19 42 19 48 19 54 19 60 19 66 19 72 19 78 19 84 19 90 19 96
Making a miracle by Lucas
6.0%
US
5.0%
Italy
Argentina
4.0%
3.0%
2.0%
1.0%
0.0% 1870 -1.0% 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990
-2.0%
-3.0%
Growth between countries
Human capital



The main engine of growth Main source of differences in living standards among nations. Physical capital plays an essential but subsidiary role. Expansion of the definition of HK: not only formal education but on the job.
GDP per capita growth (1960-2000) Philippines: 62% South Korea: 1200% GDP per capita growth, annual rate (1960-2000) Philippines: 1.2% South Korea: 6.6%

Variability of growth rates over time

Variability of growth rates between countries

Convergence in richer countries
Growth rates over time
Annual Growth Rates by decade