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its productivity by adopting technology that had been developed in the United
According to the convergence
States, Europe, and Japan over the previous century. This was aided by a huge in-
hypothesis, international differences
vestment in human capital through widespread schooling. in real GDP per capita tend to narrow
The East Asian experience demonstrates that economic growth can be especially over time.
fast in countries that are playing catch -up to other countries with higher GDP per
capita. On this basis, many economists have suggested a general principle known as
the convergence hypothesis. It says that differences in real GDP per capita among
countries tend to narrow over time because countries that start with lower real GDP Section 7 Economic Growth and Productivity
per capita tend to have higher growth rates. We’ll look at the evidence for the conver-
gence hypothesis later in this section.
Even before we get to that evidence, however, we can say right away that starting
with a relatively low level of real GDP per capita is no guarantee of rapid growth, as the
examples of Latin America and Africa both demonstrate.

Latin America’s Disappointment
In 1900, Latin America was not regarded as an economically backward region. Natural
resources, including both minerals and cultivatable land, were abundant. Some coun-
tries, notably Argentina, attracted millions of immigrants from Europe in search of a
better life. Measures of real GDP per capita in Argentina, Uruguay, and southern Brazil
were comparable to those in economically advanced countries.
Since about 1920, however, growth in Latin America has been disappointing. As Fig-
ure 38.3 shows in the case of Argentina, it has remained disappointing to this day. The
fact that South Korea is now much richer than Argentina would have seemed incon-
ceivable a few generations ago.
Why has Latin America stagnated? Comparisons with East
Asian success stories suggest several factors. The rates of sav-
ings and investment spending in Latin America have been
much lower than in East Asia, partly as a result of irresponsi-
ble government policy that has eroded savings through high
inflation, bank failures, and other disruptions. Education—
especially broad basic education—has been underemphasized:
even Latin American nations rich in natural resources often
failed to channel that wealth into their educational systems.
And political instability, leading to irresponsible economic David R. Frazier Photolibrary, Inc./Alamy
policies, has taken a toll.
In the 1980s, many economists came to believe that Latin
America was suffering from excessive government intervention
in markets. They recommended opening the economies to im-
ports, selling off government - owned companies, and, in general, freeing up individual Relatively low rates of savings, invest-
initiative. The hope was that this would produce an East Asian–type economic surge. ment spending, and education, along
with political instability, have hampered
So far, however, only one Latin American nation, Chile, has achieved rapid growth. It economic growth in Latin America.
now seems that pulling off an economic miracle is harder than it looks.

Africa’s Troubles

1
Africa south of the Sahara is home to about 780 million people, more than 2 ⁄2 times
the population of the United States. On average, they are very poor, nowhere close to
U.S. living standards 100 or even 200 years ago. And economic progress has been both
slow and uneven, as the example of Nigeria, the most populous nation in the region,
suggests. In fact, real GDP per capita in sub - Saharan Africa actually fell 13 percent
from 1980 to 1994, although it has recovered since then. The consequence of this poor
growth performance has been intense and continuing poverty.
This is a very disheartening picture. What explains it?
Perhaps first and foremost is the problem of political instability. In the years since
1975, large parts of Africa have experienced savage civil wars (often with outside powers

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