How Confident Are We That Middle-Income Convergence to the Global Productivity Frontier Is Now the Rule? Not at All...
- Paul Krugman: Notes on Global Convergence https://twitter.com/delong/status/1053754235362275328
- Dev Patel, Justin Sandefur, and Arvind Subramanian: Everything You Know about Cross-Country Convergence Is (Now) Wrong
- Paul Johnson and Chris Papageorgiou: What Remains of Cross-Country Convergence?
Paul Krugman: Notes on Global Convergence: "I take a short break from our national crisis. Political anxiety will resume shortly.... In the 1970s... development economics... was mostly non-development economics...
...True, we were already seeing a growth takeoff in smaller East Asian economies, but few saw this as a trend.... Something happened.... It’s a good guess that it has something to do with hyperglobalization.... But we don’t really know even that.... At any given time, not all countries have that mysterious “IT” that lets them make effective use of the backlog of advanced technology developed since the Industrial Revolution. Over time, however, the set of countries that have IT seems to be widening. Once a country acquires IT growth can be rapid... because best practice is so far ahead.... The frontier keeps moving out.... Japan’s postwar growth was vastly faster... countries catching up... in the late 19th century; Korea’s growth... faster than Japan’s had been; China’s growth faster still. The IT theory also... explains... middle-income countries grow [ing]faster than either poor or rich countries. Countries that are still very poor... haven’t got IT; countries that are already rich are already at the technological frontier.... In between are countries that acquired IT not too long ago.... The result is a world in which inequality among countries is declining if you look from the middle upward, but rising if you look from the middle down.... a story of diminishing Western exceptionalism, as the club of countries that can take full advantage of modern technology expands...
Hmmm... One of us, probably me. seems confused...
What does Patel, Sandefur, and Subramanian https://piie.com/blogs/realtime-economic-issues-watch/everything-you-know-about-cross-country-convergence-now-wrong mean? I see their graph above graph as saying: since 2007 growth in the Global North has totally cratered.
Thus, if you run convergence regressions for which the past decade is a considerable share of the sample, you find unconditional convergence. Why? Because the Global North has had a horrendous business cycle. The Global North is was initially rich. And the computer is smart enough to use initial wealth as an indicator that cyclical performance since 2008 has been abysmal.
But for any regressions starting before 1990 even when they include 2008-2018 (and much more so when they do not), the divergence up until 2008 is larger than the convergence induced by the post-2007 cratering of the Global North.
The big fact for the entire period since World War II remains: Divergence, Bigtime—at least when observations are countries.
It's not "everything you know about cross-country convergence is (now) wrong". Estimated β over the entire period since 1960 is still -0.2. It's "catastrophic policy failure in the Global North since 2008". (Of course, if your unit of observation is people rather than nations, that China & India have done very well and have 2.3 billion matters a lot).
#shouldread #economicgrowth #globalization #highlighted