 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”

Convergence: a static approach  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: a static approach  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 ( )  industrialization: the trigger and the best indicator  around 1850 a small group follows UK: Belgium and USA North East Coast States

Historical trends of convergence  the first era of globalization ( )  main features: second IR and transport Revolution  the club expands to  Western offshoots  Western Europe  Japan

Historical trends of convergence  extended interwar years ( )  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

Historical trends of convergence  the second era of globalization ( )  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

Historical trends of convergence  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

Historical trends of convergence  History unveils a compex pattern in the relation between market integration and convergence:  The effects of globalization can be selective ( )  The relation can be in inverse proportion ( )  The geography of convergence can change over time ( )

Supporting convergence  studying divergence to support convergence  conditional convergence  neo-classic economists: the world is converging (Robert Barro)

Supporting convergence  the paradox: Mozambique converging to USA?  self-evident findings:  “bad” demography and education  “bad” institutions  low investments  actual divergence vs conditional convergence

Supporting 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 ( ):  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 period on a sample:  109 countries  GDP per capita  countries grouped on average income  test: variance measures dispersion = divergence

Analytical study of convergence  results (tab. 4.1): divergence occurrs in each group except for the richest 19 countries  main cause is the failure of the poorest to match the growth of the richer countries

Analytical study of convergence  Second analytical examination for the 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

Analytical study of convergence  results (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

Analytical study of convergence  results (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

Analytical study of convergence  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

Supporting 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