Presentation reviewing Divergence, Big Time by Lant Prichet (2007). The article shows that while theory suggests that diminishing returns will cause national economies to converge over time, reality present a different picture.

1. Prichett, Lant (1997)

2. GDP = private consumption + gross
investment + government spending +
net exports
The GDP growth rate is the percentage
change in GDP over time.
Gross domestic product is used to measure
the standard of living of countries and to
compare economies.

3. In any period, the economies of countries
that start off poor generally grow faster
than the economies of countries that
start off rich. As a result, the national
income of poor countries usually catches
up with the national income of rich
countries.
Causes: diminishing returns, existing
technologies
Examples: Singapore, Hong Kong, South
Korea and Taiwan

4. Source: Madison database
GDP/capita over Time for the Richest and P

5. National Income Inequality
GDP Growth Rates
Or
Over the past 150 years or so, countries
with low GDP/capita have not been
catching up to countries with high
GDP/capita

6. Prichett compared the GDP growth paths
of the richest poorest economies from
1870 to 1990
Pritchett established a lower bound for
GDP/capita at $P 250 (1985 ppp)

7. 1. No recorded GDP/capita has ever been
consistently lower then $P 250
2. $P 250 = $P 0.70/day
3. A population living on less than $P
0.70/day would be too sick to expand

10. Comparing the GDP growth rates of the
richest and poorest showed that rich
countries are getting richer at a faster
rate than poor countries
Richest: GDP/capita growth = 2%/year
Poorest: GDP/capita growth = 1%/year

13. Prichett’s focus is on the two extremes, between
which there is divergence
There is convergence within groups of
economies (i.e. within the OECD, or between the
poorest economies)

14. Poverty trap: circumstances that keep
countries from breaking out of poverty:
 Technologies: capital and knowledge
 Poor infrastructure
 Closed Markets
 Corruption
 War

15. This article approaches comparative
changes in national income inequality using
simple terms
Article argues against the norm, showing that
convergence between the richest and
poorest economies is not happening
This article raises awareness about persistent
national income inequality

16. 1. What accounts for continued per capita growth
and technological progress of those leading
countries at the frontier?
2. What accounts for the few countries that are
able to initiate and sustain periods of rapid
growth in which they gain significantly on the
leaders?
3. What accounts for why some countries fade
and lose the momentum of rapid growth?
4. What accounts for why some countries remain
in low growth for very long periods?