based on Chapter 4: Steve Dowrick and J. Bradford DeLong, Globalization and Convergence.

based on Chapter 4:

Steve Dowrick and J. Bradford DeLong, Globalization and Convergence

Convergence: a static approach

globalization/market integration vs convergence today we experience economic

globalization …… yet we do not clearly see

convergence outside OECD countries

how to spread convergence? In search for the “secret ingredient”


the failing predictions of neo-classical models

the raw reality of facts: divergence during 20th century

growth and convergence: a matter of point of view

absolute vs relative terms


Convergence Club: comparative approach

factors defining membership:a) GDP per capita/per worker

b) industrial development (structural change)

joining in the “club” (but leaving it as well): life membership is not granted

first results: free-trade as a pre-condition to enter the club

Historical trends of convergence

the birth of the Convergence Club (1820-1870)

industrialization: the trigger and the best indicator

around 1850 a small group follows UK: Belgium and USA North East Coast States


the first era of globalization (1870-1914)

main features: second IR and transport Revolution

the club expands toWestern offshoots

Western Europe

Japan


extended interwar years (1914-1950)

apparent paradox: a phase of increasing convergence during a period of market dis-integration

new members:Soviet Union

majority of S. America

possibly: some African colonies


the second era of globalization (1950-2000)

an expansion in the size of convergence club:OECD countries fill the gap (golden age)

East Asian Tigers (1960s-1970s)

Finally China and India (1980s)

but also drop-outs


but also drop-outs:Former Soviet-Union

big parts of S.America

all African economies

it is an unexpected trend

… and suspect number one are economic policies


History unveils a compex pattern in the relation between market integration and convergence: The effects of globalization can be

selective (1870-1914)

The relation can be in inverse proportion (1914-1950)

The geography of convergence can change over time (1950-2000)

Supporting convergence

studying divergence to support convergence

conditional convergence

neo-classic economists: the world is converging (Robert Barro)


the paradox: Mozambique converging to USA?

self-evident findings:“bad” demography and education“bad” institutionslow investments

actual divergence vs conditional convergence


likely blockages to convergence:

- poverty trap

- lack of education and human capital, inability in absorbing technology

- inefficiency of labour

Supporting convergence: openness

another ingredient in the “mixer”: globalization-openness-convergence

Sachs and Warner’s indicators: (1) tariff rates over 40%; (2) NTBs on 40% of imports or above; (3) socialist economy; (4) state monopoly on main exports;(5) black market

Supporting convergence: openness

Sachs and Warner’s findings (1970-89):

strong convergence among open economies in terms of income (GDP per capita)

no convergence among closed economies in terms GDP per capita

2.5% year growth if one country opens

Analytical study of convergence

First analytical examination for the 1960-1998 period on a sample:109 countries

GDP per capita

countries grouped on average income

test: variance measures dispersion = divergence


results (tab. 4.1):

divergence occurrs in each group except for the richest 19 countries 1960-1980

main cause is the failure of the poorest to match the growth of the richer countries


Second analytical examination for the 1960-1998 period on a sample:96 countries convergence interacting with:(1) openness; (2) + income; (3) +

investments; (4) + population

testing the impact of openness on convergence with regressions


results 1960-1980 (tab. 4.4):

(1) openness lifts per capita GDP (cp. fig. 4.5)

(2) openness tends to be more important for poor countries

(3) investment rates and demography matter


results 1980-1998 (tab. 4.4):

(4) openness less important (cp. fig. 4.6)

(5) openness less beneficial for poor countries than previous interval

(6) investment rates and demography matter more than before

(7) education begins to matter in this interval


1960-1998 period, overall results:

(1) divergence rather than convergence, especially for low income economies

(2) openness is correlated to economic growth but not always to convergence


Factors of divergence:

low income;

low investments;

lack of education;

population increase.

Historical trends of convergence: a conclusion

No evidence of a direct relation globalization/convergence

Opennes does not seem to be the one solution for the “great divide”

Pre-industrial “traps” main blockades to convergence for poorest countries

A good news: the picture changes if we consider world population

based on Chapter 4: Steve Dowrick and J. Bradford DeLong, Globalization and Convergence.

Documents

Transcript of based on Chapter 4: Steve Dowrick and J. Bradford DeLong, Globalization and Convergence.