Conditional convergence posits that poorer economies benefit from a so-called catch-up growth potential. As a result of faster per capita growth, GDP per capita will over time converge to the level of the most advanced economies. As per capita income converges, per capita growth will slow down to the so-called steady state rate that economies experience when operating at the technological frontier. This convergence is conditional because whether or not it comes about is a function of supportive conditions and growth-oriented policies. This theory differs sharply from the so-called dependency theory, which posits, by contrast, that poor, peripheral economies find it impossible to catch up with the advanced economies. Germany’s and Japan’s rapid economic rise in the late 19th century and post-WW-II, respectively, demonstrate that catch-up is possible, even though dependency theorists would not regard either country as belonging to the periphery. While German per capita income reached ¾ of UK per capita GDP just before WWI, Japan (and Germany) reached a comparable level relative to the US only in the late 70s/early 80s. What is nonetheless remarkable is that the relative economic position of many emerging economies today, defined as their per capita income as a share of the lead country, has changed relatively little. Real per capita income levels have, of course, risen in most economies over the past few decades. Surprisingly, few of the so-called emerging economies have, however, been able to replicate Germany’s and Japan’s success. Excluding city-states (Hong Kong, Singapore, Macau) as well as demographically small, but very resource-rich economies (Kuwait, UAE, Brunei, Qatar), only two economies have succeeded in catching up with the major advanced economies, if not with the US itself: Korea and Taiwan. It is similarly remarkable that with the exception of Russia the per capita incomes of the world’s five largest emerging economies (BRIC, Mexico) amount to only about 30% of US per capita GDP or less. If one is a pessimist, one will interpret this as evidence that catch-up will be difficult to achieve. If one is an optimist, one will interpret this as meaning that the major emerging economies will continue to benefit from a tremendous growth potential, even if it will require structural reforms to exploit it.
 |
| Source: IMF |