Abstract
Can the development of the world economy – the growth of global GDP and the increase in global inequality – in the period from 1820 to the present be understood as the result of the spread of one fundamental ‘innovation’, the Industrial Revolution? This paper uses the Maddison (2003) dataset to test a model presented by Lucas (2000) arguing this point. We try to establish how the ‘convergence club’ evolves over time (which countries become a member, when and why), and if the development of global growth and inequality can be explained by the model. We find that the model does to a large extent explain the stylized facts, but does not take into account 1/ that countries can also leave the convergence club (which occurs on a relatively large scale after 1973) and 2/ inequality between non-members of the convergence club (which explains a large part of global inequality). We argue that such an interpretation of the process of divergence and convergence in the world economy has important implications for the analysis of the causes of these processes.The idea seems quite intuitive. With the industrial revolution, some countries started to rapidly increase GDP. Some countries made the leap to join the front runners as the Industrial Revolution diffused around the world. In recent years, more and more countries joined the Industrial Revolution, but some that were on track to do so lost the path. I suspect that war and poor governance make a lot of the reason that counries fall off the track. It is less obvious what the conditions are to join -- probably a combination of geography, human resources, and institutions,
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