Why economic convergence matters in today’s globalized world


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In his fine book The Upside of Down: Catastrophe, Creativity and the Renewal of Civilization, professor Thomas Homer-Dixon refers to the projected divergence in average income per capita between the rich and poor countries.

Even if one assumes that the low income countries grow for the foreseeable future at much higher rates than the high income countries, because the current gap in per capita income is so large, the gap widens for many decades to come before convergence finally sets in well into the next century, if not later.

In other words, by 2015 the rich countries are so far ahead of the rest of the world that, except for a handful of countries with incomes very close to the income of the poorest rich country, no one else has a realistic chance of converging, as Taiwan (China) and South Korea did during the post-World War II period. This phenomenon, of widening income gaps in the future notwithstanding the presence of higher growth rates in the poor countries today is what Homer-Dixon (p. 189) calls “the dirty little secret of development economics.”

There are several problems with such widening gaps. A first obvious one is that the larger the gap, the more difficult it is to make the jump. Taiwan (China), Singapore and Korea did it and Chile has been admitted to the OECD—but these cases of upward mobility are few and far between. Landes (1990) thinks that an important constraint is knowledge and know-how, which cannot be easily acquired.

The development of Taiwan’s human capital during its transition into the rich economy club was an extremely complex process. Although seemingly a disadvantage at the time, the brain drain of the 1960s and 1970s—when some 50,000 of the brightest young Taiwanese went overseas (principally to the United States) for university and advanced studies—allowed Taiwan to build a large pool of qualified and experienced people before its economy was ready to absorb them.

From 1985 onwards, incentives drew them back to Taiwan as entrepreneurs, to create start-ups in the science parks, or to take up research, academic, and management positions, bringing not only their knowledge and experience, but also their networks of contacts and working relationships with leading international companies, and enabling today’s Taiwanese universities to educate its own manpower for continuing expansion at home.

These informal networks, supplemented by overseas offices of various institutes and research centers, have facilitated technology transfer, innovation, and strong entrepreneurial relationships. In other economies, the story of training and higher education has often been, as noted by Landes, “the permanent loss of talent.”[1]

Being far behind creates a difficult context for the implementation of sound policies. The populations of poor countries can readily and accurately estimate—because of the power of communications technologies—how far back they are vis-à-vis the rest of the world, particularly the rich economies of the industrial world. This is likely to create unrealistic expectations of catchup and, in turn, force governments to favor a populist path, instead of the deliberate, gradual and at times difficult path chosen by the few successful cases of upward mobility.

When the gap is so wide that the possibility of catching up within a generation or two is no more than a pipe dream, governments may find it difficult to engage the public in the pursuit of cautious, coherent policies. “Lateness is the parent of bad government” [2] is how Landes puts it, where he uses the noun “late” to mean late entry into the development process, captured by a low per capita income.

Furthermore, the combination of widening income gaps between countries and the globalization of ideas, knowledge, access to information and awareness of others’ living standards provides powerful incentives for the movement of people across international boundaries.

If to this we add the likely future effects of climate change on vulnerable populations (developing economies are far more dependent on agriculture, which will be hard hit by climate change) and the sort of chaos and generalized upheavals we have seen in recent years in a growing number of countries (e.g., Syria, Iraq, Yemen, Afghanistan, Mali, Venezuela, to name a few), then those incentives are magnified and migration risks becoming an even bigger challenge.

Some economists (e.g., Paul Collier) have highlighted some of the difficulties associated with a segmentation of the world into two broad regions, one characterized by either high income or at least positive economic growth and another where some 60 countries with a combined population in excess of 1 billion are not only falling behind but often falling apart, becoming exporters of “violence and people instead of goods and services,” [3] thereby beginning to pose a security threat to the rest of the world.

Collier argues that economic development is very much about giving ordinary people the hope that, at some point in the not too distant future, their children will have access to the same opportunities available to children in Germany and Sweden and other rich countries. The notion of convergence is very much at the heart of much of what we do at the World Bank, the idea that we will gradually see in the developing world the unfoldment of the policies and institutions that have propelled the rich countries to levels of wealth and prosperity never before reached in the last several thousand years of recorded history. In the absence of that hope, smart, motivated people will seek to escape from their societies and try to look for those opportunities elsewhere.

This creates a huge challenge for the recipient countries if the numbers are large enough to put strains on rich country budgets and infrastructures and it can deprive the sending countries of essential human capital. Hence the central importance of the World Bank’s current focus on shared prosperity; it matters not only for development outcomes, but it also clearly has a security and political dimension that goes far beyond a narrowing of income differentials.

[1] Landes, David S. 1990. “Why Are We So Rich and They So Poor?”, American Economic Review, Vol 80, No. 2, Papers and Proceedings of the Hundred and Second Annual Meeting of the American Economic Association, p. 1-13.
[2] Landes (1990), p. 12.
[3] Collier, Paul. 2007. The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It, Oxford University Press, p. 12.


Augusto Lopez-Claros

Executive Director of the Global Governance Forum

Anthony Vance
December 08, 2015

Excellent piece, as usual, Augusto. Thanks for sharing it. Its implications are such that I hope that it does not cause despair on the part of those, such as your Bank colleagues and other development policy makers, who are trying to improve the situation.
One silver lining – there is a book entitled The Spirit Level by Kate Pickett and Richard Wilkinson, which you have probably read or heard of. It was published a couple of years ago. It draws on a number of studies correlating income inequality within OECD-level countries to a variety of social indicators, such as infant mortality rates, crime, teenage pregnancy, drug addiction, alcohol addiction, obesity, etc. and reaches the conclusion that once a certain threshold level of per capita income has been achieved, income equality within a country has a far stronger correlation with positive numbers on these social indicators than does per capita income.
In my opinion, the implications of this are that, although convergence is obviously desirable, the actual well-being of citizens within countries that are struggling to catch up will be, as they approach the lowest current OECD per capita income levels, more and more correlated with income equality within a country than with per capita income. In other words, it appears that, as per capita incomes rise in the developing world, these social indicators will be more and more correlated with how the average citizen is doing relative to his fellow countrymen rather than with citizens of other countries. Thus, convergence, though desirable, may not be the key factor for the well-being of citizens. Certainly, within the OECD, income levels have been for a while high enough so that the average citizen is very cognizant, through television and other media, of the fact that citizens in other OECD societies are wealthier and can even see that wealth on television. Yet, it is those OECD countries with the lowest degrees of internal inequality that do best with respect to the social indicators. (The measuring indicator of income inequality cited by Pickett and Wilkinson varies a bit depending on the particular report they cite, but, if I recall correctly, many, if not most, of the reports that they cited utilized the Gini coefficient as the measure of income inequality.) Hopefully, policy makers can take this into account. Why this would be the case would be an interesting area to explore. Perhaps it is as simple as the theory that most people have higher self-esteem when they know they do not compare unfavorably to their neighbors and society generally in terms of income and wealth, which, in turn, leads somehow to lesser degrees of self-destructive behavior.

Galuh Gayatri
December 04, 2015

Widening gaps between countries occur due to shortage of infrastructure mostly in developing countries. Infrastructure—including domestic connectivity, water resources infrastructure, etc—is one of the key instruments to accelerate the economy. The challenge for developing countries is that they are lack of funding to finance huge expenditure to build infrastructure. This problem certainly needs coordination between government of developing countries with private sector to fulfill the financing gap. Moreover, education also plays important role in accelerating country’s economy, especially in long term. This article takes a great example of Taiwan (China) who successfully invested in its young people’s education by sending them to study abroad and resulted in qualified manpower and high economic growth. This can be a lesson learned for other developing countries to apply the same path as their development strategies. Hopefully, focusing on these two important factors, infrastructure and education, those countries left behind will gradually catch up with high-income countries.

Ron Ockwell
December 12, 2015

I've just seen the original article and Galuh's comment. Both seem to take it as a given that higher levels of education lead to better economic performance. And both refer to the example of Taiwan.
However, Ha-Joon Change - Taiwanese-born professor of economics at Cambridge University UK - contests this! See "23 Things they don't tell you about Capitalism", Penguin 2010, "Thing 17" of which the chapter title is: "More education in itself is not going to make a country richer"...

Flavio da Silveira
December 06, 2015

Thank you for this clear insight on the threatening divergence between “the horrible and the miserable”, as Woody Allen would say. Obviously, there is no ready-made solution and the list of medicines is a long one. Is there, however, a “backbone” political principle for the miserable to come closer to the horrible?