WASHINGTON, DC – For almost two centuries, starting around 1800, the history of the global economy was broadly one of divergence in average incomes. In relative terms, rich countries got even richer. There was growth in the poorer countries, too, but it was slower than rich-country growth, and the discrepancy in prosperity between rich and poor countries increased.
This “divergence” was very pronounced in colonial times. It slowed after the 1940’s, but it was only around 1990 that an entirely new trend could be observed – convergence between average incomes in the group of rich countries and the rest of the world. From 1990 to 2010, average per capita income in the emerging and developing countries grew almost three times as fast as average income in Europe, North America, and Japan, compared to lower or, at most, equal growth rates for almost two centuries.
This has been a revolutionary change, but will this 20-year-old trend continue? Will convergence remain rapid, or will it be a passing phase in world economic history?
Long-term projections based on short-term trends have often been mistaken. In the late 1950’s, after the Soviet Union launched the first spacecraft, eminent Western economists predicted that Soviet income would overtake that of the United States in a few decades. After all, the Soviet Union was investing close to 40% of its GDP, twice the ratio in the West.