divergence big time
TRANSCRIPT
GDP = private consumption + gross investment + government spending + net exports
The GDP growth rate is the percentage change in GDP over time.
Gross domestic product is used to measure the standard of living of
countries and to compare economies.
In any period, the economies of countries that start off poor generally grow faster
than the economies of countries that start off rich. As a result, the national
income of poor countries usually catches up with the national income of
rich countries.Causes: diminishing returns, existing
technologiesExamples: Singapore, Hong Kong, South
Korea and Taiwan
National Income InequalityGDP Growth Rates
Or
Over the past 150 years or so, countries with low GDP/capita have not been catching up to countries with high
GDP/capita
Prichett compared the GDP growth paths of the richest poorest economies from
1870 to 1990
Pritchett established a lower bound for GDP/capita at $P 250 (1985 ppp)
1. No recorded GDP/capita has ever been consistently lower then $P 250
2. $P 250 = $P 0.70/day
3. A population living on less than $P 0.70/day would be too sick to expand
Comparing the GDP growth rates of the richest and poorest showed that rich
countries are getting richer at a faster rate than poor countries
Richest: GDP/capita growth = 2%/yearPoorest: GDP/capita growth = 1%/year
Prichett’s focus is on the two extremes, between which there is divergence
There is convergence within groups of economies (i.e. within the OECD, or between the
poorest economies)
Poverty trap: circumstances that keep countries from breaking out of poverty: Technologies: capital and knowledge
Poor infrastructure Closed Markets
Corruption War
This article approaches comparative changes in national income inequality
using simple terms
Article argues against the norm, showing that convergence between the richest
and poorest economies is not happening
This article raises awareness about persistent national income inequality
1. What accounts for continued per capita growth and technological progress of those leading countries at the frontier?
2. What accounts for the few countries that are able to initiate and sustain periods of rapid growth in which they gain significantly on the leaders?
3. What accounts for why some countries fade and lose the momentum of rapid growth?
4. What accounts for why some countries remain in low growth for very long periods?