Solution
Komalavalli answered on
Jun 14 2021
Introduction
Long run economic growth:
An increase in domestic production as a resulting from rise in total supply. If GDP increases due to increased productive or abundant national resources, then full-employment output levels will rise and this expansion is likely to be sustained and characterized by low inflation (i.e. stable price levels).
Three key drivers of economic growth are present: Capital stock accumulation, increased work inputs such as employees or working hours, Progress in technology. The contribution of each of these three elements to the economy is measured by growth accounting. The growth of a country may therefore be split down by taking the proportion of economic growth generated by capital, labor and technology into consideration.
Theoretically as well as experimentally, technical innovation has been demonstrated as a primary engine of long-term growth. In fact, the explanation is simple. If the additional input component is held constant, it will ultimately decrease in line with the law of decreased revenues, as a result of the addition of one more unit of capital or labor input. Thus, a country can only accumulate capital or labor to continue its long-term growth. Thus, technical innovation must be the driving force of long-term growth.
Will the poor countries catch up to rich countries by growing faster
The idea of economic convergence (also called the catch-up) is the hypothesis that the per-capital income of the poorer economies tends to grow at rates faster than of the rich economies and, as part of the slow-growth model, the accumulation of physical capital leads economic growth to an optimal level of capital per worker, which is the "stable state." The model forecasts faster development when the per capita stock of physical capital is low, commonly called 'tack up' growth. As a consequence, the per capita earnings of all economies should converge. Because decreasing returns (particularly to capital) are not as large as in the capitalistic nations, developing nations can expand quicker than industrialized nations. In addition, poorer nations can duplicate developed nations' industrial practices, technology and institutions.
The term "convergence" can have two meanings in economic development literature. In the first case which is also refe
ed to as "sigma-convergence", the distribution of income levels across economies decreases. On the other hand, beta-convergence happens in economies that are poorer than wealthy. Economists claim that when "beta convergence" is seen in the economies, it depends on other factors (i.e. investment rate and population growth rate). You argue that there exists "unconditional beta convergence" or "absolute beta convergence" when an economy's growth rate decreases as it moves closer to its constancy.
According to Jack Goldstone, "The Grand Divergence peaked before the First World War and remained until the early 1970s, and then in the late 1980s, after two decades of uncertain fluctuations, replaced the Grand Convergence, because the majority of countries in the Third World have attained significantly higher levels of economic growth than those in most First-World countries."
Background:
Summary of Real GDP
Canada
Â
Germany
Â
India
Â
Mean
1138011909335.88
Mean
2246244227600.00
Mean
40259932046062.90
Standard E
o
68585465209.07
Standard E
o
82985339026.65
Standard E
o
4867377732680.01
Median
1104320653000.00
Median
2310639740000.00
Median
24486257706898.90
Mode
#N/A
Mode
#N/A
Mode
#N/A
Standard Deviation
531260729093.23
Standard Deviation
586794959648.10
Standard Deviation
37702545796741.00
Kurtosis
-0.97
Kurtosis
-1.25
Kurtosis
0.88
Skewness
0.30
Skewness
-0.06
Skewness
1.36
Range
1825027850437.83
Range
1971543439000.00
Range
138289073771213.00
Minimum
325894992562.17
Minimum
1260719421000.00
Minimum
7370436294187.46
Maximum
2150922843000.00
Maximum
3232262860000.00
Maximum
145659510065400.00
Sum
68280714560152.60
Sum
112312211380000.00
Sum
2415595922763780.00
Count
60.00
Count
50.00
Count
60.00
Japan
Â
Netherlands
Â
Pakistan
Â
Mean
353487941394803.00
Mean
438469296633.91
Mean
4872038053222.01
Standard E
o
19933208136314.90
Standard E
o
23778030443.73
Standard E
o
470512241134.74
Median
407575167748000.00
Median
410761628500.00
Median
4010885323762.31
Mode
#N/A
Mode
#N/A
Mode
#N/A
Standard Deviation
154401966296868.00
Standard Deviation
184183831828.32
Standard Deviation
3644572148203.12
Kurtosis
-1.30
Kurtosis
-1.31
Kurtosis
-0.56
Skewness
-0.40
Skewness
0.13
Skewness
0.74
Range
480377702044782.00
Range
607442061046.60
Range
12560754425051.20
Minimum
70640708897217.60
Minimum
147806428953.40
Minimum
702111574948.83
Maximum
551018410942000.00
Maximum
755248490000.00
Maximum
13262866000000.00
Sum
21209276483688200.00
Sum
26308157798034.60
Sum
292322283193321.00
Count
60.00
Count
60.00
Count
60.00
Philippines
Â
United States
Â
South Africa
Â
Mean
6537918998241.42
Mean
10477192025609.80
Mean
1747088168306.34
Standard E
o
578050864503.45
Standard E
o
644732743478.02
Standard E
o
98170880562.69
Median
5174538795496.51
Median
9711145334500.00
Median
1600277838072.10
Mode
#N/A
Mode
#N/A
Mode
#N/A
Standard Deviation
4477562742965.29
Standard Deviation
4994078356489.94
Standard Deviation
760428371003.66
Kurtosis
0.87
Kurtosis
-1.25
Kurtosis
-0.86
Skewness
1.24
Skewness
0.32
Skewness
0.45
Range
17817499606417.40
Range
16481856621418.20
Range
2570442830377.93
Minimum
1551013215082.60
Minimum
3457188037625.69
Minimum
578894211522.07
Maximum
19368512821500.00
Maximum
19939044659043.90
Maximum
3149337041900.00
Sum
392275139894485.00
Sum
628631521536587.00
Sum
104825290098380.00
Count
60.00
Count
60.00
Count
60.00
Zimbabwe
Â
Mean
12304453145.28
Standard E
o
621383292.56
Median
12430274258.90
Mode
#N/A
Standard Deviation
4813214287.37
Kurtosis
-1.12
Skewness
-0.17
Range
16106785703.61
Minimum
4007774296.39
Maximum
20114560000.00
Sum
738267188716.64
Count
60.00
GDP Growth rate
Canada
Â
Germany
Â
India
Â
Japan
Â
Netherlands
Â
Mean
3
Mean
2
Mean
5
Mean
4
Mean
3
Standard E
o
0
Standard E
o
0
Standard E
o
0
Standard E
o
1
Standard E
o
0
Median
3
Median
2
Median
6
Median
3
Median
3
Mode
#N/A
Mode
#N/A
Mode
#N/A
Mode
#N/A
Mode
#N/A
Standard Deviation
3
Standard Deviation
2
Standard Deviation
3
Standard Deviation
4
Standard Deviation
2
Sample Variance
7
Sample Variance
4
Sample Variance
8
Sample Variance
15
Sample Variance
5
Kurtosis
2
Kurtosis
4
Kurtosis
2
Kurtosis
0
Kurtosis
1
Skewness
0
Skewness
-1
Skewness
-1
Skewness
1
Skewness
0
Range
16
Range
11
Range
15
Range
18
Range
12
Minimum
-4
Minimum
-6
Minimum
-5
Minimum
-5
Minimum
-4
Maximum
12
Maximum
5
Maximum
10
Maximum
13
Maximum
9
Sum
194
Sum
96
Sum
308
Sum
213
Sum
167
Count
59
Count
49
Count
59
Count
59
Count
59
Pakistan
Â
Philippines
Â
United States
Â
South Africa
Â
Zimbabwe
Â
Â
Â
Â
Â
Â
Â
Â
Â
Â
Â
Mean
5
Mean
4
Mean
3
Mean
3
Mean
3
Standard E
o
0
Standard E
o
0
Standard E
o
0
Standard E
o
0
Standard E
o
1
Median
5
Median
5
Median
3
Median
3
Median
2
Mode
#N/A
Mode
#N/A
Mode
#N/A
Mode
#N/A
Mode
#N/A
Standard Deviation
2
Standard Deviation
3
Standard Deviation
2
Standard Deviation
2
Standard Deviation
8
Sample Variance
6
Sample Variance
9
Sample Variance
4
Sample Variance
6
Sample Variance
59
Kurtosis
0
Kurtosis
7
Kurtosis
0
Kurtosis
-1
Kurtosis
1
Skewness
0
Skewness
-2
Skewness
0
Skewness
0
Skewness
0
Range
11
Range
16
Range
10
Range
10
Range
40
Minimum
0
Minimum
-7
Minimum
-3
Minimum
-2
Minimum
-18
Maximum
11
Maximum
9
Maximum
7
Maximum
8
Maximum
23
Sum
303
Sum
260
Sum
179
Sum
174
Sum
172
Count
59
Count
59
Count
59
Count
59
Count
59
Inflation rate
Canada
Â
Germany
Â
India
Â
Japan
Â
Netherlands
Â
Â
Â
Â
Â
Â
Â
Â
Â
Â
Â
Mean
4
Mean
3
Mean
7
Mean
3
Mean
4
Standard E
o
0
Standard E
o
0
Standard E
o
0
Standard E
o
1
Standard E
o
0
Median
3
Median
2
Median
8
Median
1
Median
2
Mode
#N/A
Mode
#N/A
Mode
#N/A
Mode
#N/A
Mode
#N/A
Standard Deviation
4
Standard Deviation
2
Standard Deviation
4
Standard Deviation
5
Standard Deviation
3
Sample Variance
13
Sample Variance
3
Sample Variance
15
Sample Variance
23
Sample Variance
10
Kurtosis
1
Kurtosis
1
Kurtosis
1
Kurtosis
8
Kurtosis
2
Skewness
1
Skewness
1
Skewness
0
Skewness
2
Skewness
1
Range
19
Range
8
Range
19
Range
25
Range
16
Minimum
-4
Minimum
0
Minimum
-2
Minimum
-2
Minimum
-1
Maximum
16
Maximum
8
Maximum
18
Maximum
23
Maximum
15
Sum
226
Sum
123
Sum
425
Sum
157
Sum
208
Count
59
Count
49
Count
59
Count
59
Count
59
Pakistan
Â
Philippines
Â
United States
Â
South Africa
Â
Zimbabwe
Â
Â
Â
Â
Â
Â
Â
Â
Â
Â
Â
Mean
9
Mean
9
Mean
3
Mean
9
Mean
3
Standard E
o
1
Standard E
o
1
Standard E
o
0
Standard E
o
1
Standard E
o
2
Median
7
Median
7
Median
2
Median
8
Median
3
Mode
#N/A
Mode
#N/A
Mode
#N/A
Mode
#N/A
Mode
#N/A
Standard Deviation
7
Standard Deviation
8
Standard Deviation
2
Standard Deviation
5
Standard Deviation
15
Sample Variance
43
Sample Variance
68
Sample Variance
5
Sample Variance
25
Sample Variance
216
Kurtosis
7
Kurtosis
15
Kurtosis
1
Kurtosis
0
Kurtosis
27
Skewness
2
Skewness
3
Skewness
1
Skewness
1
Skewness
4
Range
40
Range
54
Range
9
Range
24
Range
122
Minimum
-1
Minimum
-1
Minimum
1
Minimum
0
Minimum
-27
Maximum
39
Maximum
53
Maximum
9
Maximum
25
Maximum
95
Sum
503
Sum
511
Sum
197
Sum
545
Sum
198
Count
59
Count
59
Count
59
Count
59
Count
59
Unemployment Rate
Canada
Â
Germany
Â
India
Â
Japan
Â
Netherlands
Â
Â
Â
Â
Â
Â
Â
Â
Â
Â
Â
Mean
7.9
Mean
7.1
Mean
3.3
Mean
2.8
Mean
5.9
Standard E
o
0.2
Standard E
o
0.3
Standard E
o
0.5
Standard E
o
0.2
Standard E
o
0.4
Median
7.6
Median
6.9
Median
2.7
Median
2.5
Median
5.9
Mode
6.9
Mode
6.3
Mode
#N/A
Mode
1.3
Mode
7.2
Standard Deviation
1.8
Standard Deviation
2.1
Standard Deviation
1.4
Standard Deviation
1.3
Standard Deviation
2.2
Sample Variance
3.1
Sample Variance
4.4
Sample Variance
1.9
Sample Variance
1.7
Sample Variance
4.9
Kurtosis
-0.3
Kurtosis
-0.7
Kurtosis
-0.9
Kurtosis
-0.9
Kurtosis
0.3
Skewness
0.6
Skewness
0.0
Skewness
1.1
Skewness
0.5
Skewness
0.6
Range
7.3
Range
8.0
Range
3.2
Range
4.3
Range
9.7
Minimum
4.7
Minimum
3.1
Minimum
2.2
Minimum
1.1
Minimum
2.1
Maximum
12.0
Maximum
11.2
Maximum
5.3
Maximum
5.4
Maximum
11.9
Sum
402.7
Sum
261.3
Sum
23.0
Sum
167.2
Sum
231.4
Count
51.0
Count
37.0
Count
7.0
Count
60.0
Count
39.0
Pakistan
Â
Philippines
Â
United States
Â
South Africa
Â
Zimbabwe
Â
Mean
3.7
Mean
5.7
Mean
6.0
Mean
27.0
Mean
7.5
Standard E
o
0.3
Standard E
o
0.4
Standard E
o
0.2
Standard E
o
0.6
Standard E
o
1.3
Median
4.0
Median
4.8
Median
5.7
Median
26.5
Median
6.0
Mode
1.9
Mode
3.5
Mode
5.5
Mode
26.5
Mode
#N/A
Standard Deviation
2.1
Standard Deviation
2.6
Standard Deviation
1.6
Standard Deviation
2.9
Standard Deviation
4.0
Sample Variance
4.4
Sample Variance
6.9
Sample Variance
2.6
Sample Variance
8.3
Sample Variance
16.2
Kurtosis
-0.8
Kurtosis
-1.0
Kurtosis
-0.2
Kurtosis
-0.3
Kurtosis
3.7
Skewness
0.3
Skewness
0.7
Skewness
0.6
Skewness
0.6
Skewness
1.9
Range
7.4
Range
8.9
Range
6.2
Range
10.9
Range
12.5
Minimum
0.4
Minimum
2.2
Minimum
3.5
Minimum
22.4
Minimum
4.4
Maximum
7.8
Maximum
11.2
Maximum
9.7
Maximum
33.3
Maximum
16.9
Sum
164.8
Sum
277.6
Sum
366.0
Sum
593.5
Sum
67.3
Count
45.0
Count
49.0
Count
61.0
Count
22.0
Count
9.0
Since 1960 there are four worldwide recessions have occu
ed in the world economy: 1975, 1982, 1991 and 2009. During each phase, the real global GDP per capita per annum contracted and other important worldwide economic activity metrics were widespread in other episodes. These occu
ences were internationally highly coordinated with serious financial and economic disruptions in several nations worldwide. The worldwide recession of 2009 was by far the most serious and coordinated occu
ence of all four.
3.
GDP per capita
Above chart indicates that there is left skewed distribution of income for 10 countries.
GDP per capita histogram plot by taking logs
The above graph of GDP per capita tells us the countries are converging each other.
Growth rate of GDP
From above graph we can say that there are many countries experienced a negative economic growth rate during the phase of economic downturn. Conditional convergence indicates that every nation or te
itory converges to its own stable state whereas absolute convergence means that all nations and areas converge to a single, stable level of income potential. The above Log GDP per capita graph indicates that the countries are conditional convergence.
Based on the median income in 1990 10 countries has been categories into rich countries Canada, Germany, Japan, Netherland, United States which has median income above 4.14, and the countries that has median income below 4.14 has been categories into poor countries they are India, Pakistan, Philippines, South Africa, Zimbabwe.
Rich countries boxplot
Poor countries box plot
From above two boxplot we can say that the poor countries are converging with rich countries expect for Zimbabwe.
4.
a)
Unconditional Convergence:
∆GDP2020-1960 = β0+β1∆GDP1960
Regression Statistics
Â
Multiple R
0.46
R Square
0.21
Adjusted R Square
0.11
Standard E
o
0.80
Observations
10
Â
df
SS
MS
F
Significance F
Regression
1
1.37
1.37
2.12
0.18
Residual
8
5.16
0.64
Â
Â
Total
9
6.52
Â
Â
Â
Â
Coefficients
Standard E
o
t Stat
P-value
Lower 95%
Upper 95%
Lower 95.0%
Upper 95.0%
Intercept
1.56
0.40
3.87
0.00
0.63
2.48
0.63
2.48
∆GDP1960
0.14
0.10
1.46
0.18
-0.08
0.36
-0.08
0.36
From above regression output we can say that this model is insignificant. This indicates there exist no convergence between rich and poor nations.
Ln GDP2020-1960 = β0+β1LnGDP1960
Regression Statistics
Â
Multiple R
0.978824
R Square
0.958096
Adjusted R Square
0.952858
Standard E
o
0.168181
Observations
10
Â
df
SS
MS
F
Significance F
Regression
1
5.173644
5.173644
182.9123
8.58E-07
Residual
8
0.226279
0.028285
Â
Â
Total
9
5.399923
Â
Â
Â
Â
Coefficients
Standard E
o
t Stat
P-value
Lower 95%
Upper 95%
Lower 95.0%
Intercept
0.174003
0.280908
0.619432
0.55286
-0.47377
0.821779
-0.47377
LnGDP1960
1.051455
0.077744
13.52451
8.58E-07
0.872176
1.230734
0.872176
This model is significant at 5% level of significance; hence we can conclude that there exists an unconditional convergence between rich and poor nations.
)
Conditional convergence
∆GDP2020-1960 = β0+β1∆GDP1960+ β2unemp1960+ β3Inflation rate 1960
Regression Statistics
Â
Multiple R
0.789401
R Square
0.623154
Adjusted R Square
0.434731
Standard E
o
0.64012
Observations
10
Â
df
SS
MS
F
Significance F
Regression
3
4.06542
1.35514
3.307207
0.09903
Residual
6
2.458521
0.409754
Â
Â
Total
9
6.523942
Â
Â
Â
Â
Coefficients
Standard E
o
t Stat
P-value
Lower 95%
Upper 95%
Intercept
1.585909
0.405075
3.915096
0.007846
0.594725
2.577093
∆GDP1960
0.10105
0.077136
1.31002
0.238106
-0.0877
0.289794
Unemp1960
-0.03112
0.026636
-1.16829
0.287006
-0.09629
0.034057
INFR 1960
0.134659
0.072967
1.845475
0.114506
-0.04388
0.313202
This model is significant at 5% level of significance; hence we can conclude that there exists a conditional convergence between rich and poor nations. Country specific control variables such as unemployment rate and inflation rate are not significance.
5.
Data for 10 countries such as Canada, Germany, Japan, Netherland, United States, India, Pakistan, Philippines, South Africa, Zimbabwe.
a)
Unconditional Convergence:
∆GDP2020-1960 = β0+β1∆GDP1960
From above regression output we can say that this model is insignificant. This indicates there exist no convergence between rich and poor nations.
Ln GDP2020-1960 = β0+β1LnGDP1960
This model is significant at 5% level of significance; hence we can conclude that there exists an unconditional convergence between rich and poor nations.
)
Conditional convergence
This model is significant at 5% level of significance; hence we can conclude that there exists a conditional convergence between rich and poor nations. Country specific control variables such as unemployment rate and inflation rate are not significance.
Conclusion:
We can conclude that model Ln GDP2020-1960 = β0+β1LnGDP1960 and ∆GDP2020-1960 = β0+β1∆GDP1960+ β2unemp1960+ β3Inflation rate 1960 indicates there is a convergence between rich and poor nations.
Reference:
1. Econclassroom.com. (2021). Retrieved 2 June 2021, from https:
econclassroom.com/glossary/long-run-economic-growth/.
2. Catch-Up Effect Definition. Investopedia. (2021). Retrieved 2 June 2021, from https:
www.investopedia.com/terms/c/catch-up-effect.asp#:~:text=The%20catch%2Dup%20effect%20is,to%20the%20more%20robust%20economies.
3. Haskel, J. (2021). Do Poor Countries Catch Up to Rich Countries? Review Article on Productivity Convergence: Theory and Evidence by Edward Wolff. Ideas.repec.org. Retrieved 2 June 2021, from https:
ideas.repec.org/a/sls/ipmsls/v30y20167.html.
4. The convergence hypothesis. Aeaweb.org. (2021). Retrieved 2 June 2021, from https:
www.aeaweb.org
esearch/poor-rich-country-convergence-hypothesis.
5. Congressional Budget Office. 2021. The Distribution of Household Income, 2017. [online] Available at: www.cbo.gov/publication/56575> [Accessed 14 June 2021].
6. Economics Discussion. 2021. The Convergence Hypothesis: Types and Paths | Economic Growth. [online] Available at: www.economicsdiscussion.net/economic-growth/the-convergence-hypothesis-types-and-paths-economic-growth/15460> [Accessed 14 June 2021].
7. Boldrin, M. and Canova, F., 2001. Inequality and convergence in Europe's regions: reconsidering European regional policies. Economic Policy, 16(32), pp.206-253.
8. Data.worldbank.org. 2021. Unemployment, total (% of total labor force) (modeled ILO estimate) | Data. [online] Available at: data.worldbank.org/indicato
SL.UEM.TOTL.ZS> [Accessed 14 June 2021].
9. Fred.stlouisfed.org. 2021. Unemployment Rate: Aged 15 and Over: All Persons for Japan. [online] Available at: fred.stlouisfed.org/series/LRUNTTTTJPM156S> [Accessed 14 June 2021].
10. Fred.stlouisfed.org. 2021. Unemployment Rate: Aged 15 and Over: All Persons for Japan. [online] Available at:...