Nations, Industries and Households
Edited by Robert M. Solow and Jean-Philippe Touffut
Chapter 1: The Changing Global Economic Landscape: The Factors that Matter
1 Jan Fagerberg INTRODUCTION The global economic landscape is changing. Asian countries – starting with Japan in the early post-Second-World-War period, followed by the ‘Asian Tigers’ a few decades later, and China, India and several others more recently – are becoming more economically and politically important, while the roles of other parts of the globe diminish. Are these developments examples of a more general long-run trend towards eliminating the large differences in income and productivity that continue to exist between countries, what in economic jargon is called ‘convergence’? Unfortunately not. As an illustration of the long-run evidence on the matter, consider Figure 1.1, which covers more than 90 countries for a period of four decades (starting in 1960). The figure plots annual average growth of gross domestic product (GDP) per capita over the period (horizontal axis) against its initial level (vertical axis). Dashed lines represent sample averages (of growth and level of GDP per capita, respectively). In this way four quadrants emerge. The countries in the top left quadrant have a high initial GDP per capita level, but grow relatively slowly (hence, they ‘lose momentum’). In contrast, the countries in the top right quadrant continue to grow fast despite being relatively wealthy at the outset. These countries are ‘moving ahead’. The bottom right quadrant contains countries that were relatively poor to begin with, but that have been growing faster than the average. These are the countries that succeed in ‘catching up’. The least fortunate countries are to be found in the bottom...
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