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Are Economies Converging?
In the 1950s, much of Europe seemed quaint United States was the richest country in this than Latin America. But, contrary to the con-
and backward to American visitors, and Japan group in 1955 and had the slowest rate of vergence hypothesis, the Western European
seemed very poor. Today, a visitor to Paris growth. Japan and Spain were the poorest regional economy grew more quickly over
or Tokyo sees a city that looks about as rich countries in 1955 and had the fastest rates of the next 53 years, widening the gap between
as New York. Although real GDP per capita is growth. These data suggest that the conver- the regions.
still somewhat higher in the United States, the gence hypothesis is true. So is the convergence hypothesis all
differences in the standards of living among But economists who looked at similar wrong? No: economists still believe that
the United States, Europe, and Japan are rela- data realized that these results depended countries with relatively low real GDP per
tively small. on the countries selected. If you look at suc- capita tend to have higher rates of growth
Many economists have argued that this cessful economies that have a high standard than countries with relatively high real GDP
convergence in living standards is normal; of living today, you find that real GDP per per capita, other things equal. But other
the convergence hypothesis says that rela- capita has converged. But looking across the things—education, infrastructure, rule of law,
tively poor countries should have higher world as a whole, including countries that re- and so on—are often not equal. Statistical
rates of growth of real GDP per capita than main poor, there is little evidence of conver- studies find that when you adjust for differ-
relatively rich countries. And if we look at gence. Panel (b) of the figure illustrates this ences in these other factors, poorer countries
today’s relatively well - off countries, the point using data for regions rather than indi- do tend to have higher growth rates. This re-
convergence hypothesis seems to be true. vidual countries (other than the United States). sult is known as conditional convergence.
Panel (a) of the figure shows data for a In 1955, East Asia and Africa were both very Because other factors differ, however,
number of today’s wealthy economies meas- poor regions. Over the next 53 years, the East there is no clear tendency toward convergence
ured in 1990 dollars. On the horizontal Asian regional economy grew quickly, as the in the world economy as a whole. Western Eu-
axis is real GDP per capita in 1955; on the convergence hypothesis would have pre- rope, North America, and parts of Asia are be-
vertical axis is the average annual growth dicted, but the African regional economy coming more similar in real GDP per capita, but
rate of real GDP per capita from 1955 to 2008. grew very slowly. In 1955, Western Europe the gap between these regions and the rest of
There is a clear negative relationship. The had substantially higher real GDP per capita the world is growing.

(a) Convergence among Wealthy Countries... (b) ... But Not for the World as a Whole
Real GDP per Real GDP per
capita annual capita annual
growth rate growth rate
1955–2008 1955–2008
5% 5%
Japan
East Asia
4 4
Western
Italy
3 Spain France United 3 Europe United
States States
2 Germany 2
United Latin America
Kingdom
1 1
Africa

0 $5,000 10,000 15,000 0 $5,000 10,000 15,000
Real GDP per capita in 1955 Real GDP per capita in 1955

384 section 7 Economic Growth and Productivity