In Search of Convergence
For 200 years, the world’s rich countries grew faster than poorer countries. Why has that trend reversed during the past three decades, and what does the answer imply for development strategies?
For 200 years, the world’s rich countries grew faster than poorer countries. Why has that trend reversed during the past three decades, and what does the answer imply for development strategies?
Though the US Federal Reserve’s first interest-rate hike of 2023 is smaller than those that preceded it, policymakers have signaled that more increases are on the way, despite slowing price growth. But there is good reason to doubt the utility – and fear the consequences – of continued rate hikes, on both sides of the Atlantic.
CAMBRIDGE – One puzzle of the world economy is that for 200 years, the world’s rich countries grew faster than poorer countries, a process aptly described by Lant Pritchett as “Divergence, Big Time.” When Adam Smith wrote The Wealth of Nations in 1776, per capita income in the world’s richest country – probably the Netherlands – was about four times that of the poorest countries. Two centuries later, the Netherlands was 40 times richer than China, 24 times richer than India, and ten times richer than Thailand.
But, over the past three decades, the trend reversed. Now, the Netherlands is only 11 times richer than India and barely four times richer than China and Thailand. Spotting this reversal, the Nobel laureate economist Michael Spence has argued that the world is poised for The Next Convergence.
Yet some countries are still diverging. While the Netherlands was 5.8, 7.7, and 15 times richer than Nicaragua, Côte D’Ivoire, and Kenya, respectively, in 1980, by 2012 it was 10.5, 21.1, and 24.4 times richer.
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