Monday, February 18, 2013

Convergence and Lack of a "Middle Income Trap".


Source: The Economist
Recent data provided by The Economist magazine in the graph on the left suggests that countries with GDP per person over $30,000 generally are growing more slowly that those with GDP per capita between a few hundred dollars per year and $20,000. Thus there is an economic convergence among large classes of countries. On the other hand, the graph indicates that those countries with GDP per capita in the $1,000 range are not catching up (and there are a lot of them). Moreover, countries in the $2,000 group tend to be catching up very slowly if at all.

The right hand graph suggests that occasional slowdowns of a year or two are common across all income levels. This is in response to a suggestion that middle income countries are often caught in a trap as they fail to innovate technologically adequately to make up for their loss in the advantage of low wages and rural to urban migration enjoyed by poor countries.  Apparently many/most countries are able to adequately introduce labor saving technologies as wages go up to retain their economic competitiveness. Of course, many labor saving technologies already exist so perhaps it is easier to innovate  by the transfer of existing technology than by the invention of new technology. The richest countries then might be thought to be forced to invent to stay competitive.

1 comment:

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