Social Capacity and Convergence
ENCYCLOPEDIA OF POLITICAL ECONOMY, Phillip O'Hara, ed., Routledge Publishing, pp. 1033-1035, 2000
Posted: 22 Jan 2010
Date Written: 2000
Neoclassical theory predicts that economies will converge towards similar levels of real per capita gross domestic product, at least in the long run, through the process of interregional and international trade, and factor mobility. However, while there is evidence of conversion among the more developed countries of the world, between the First and the Third World countries there has actually been a divergence, with the richest countries now having the highest rate of growth, while some of the poorest countries having the lowest rates of growth. The rich regions have continued to remain rich, while the poor regions have remained poor. The stylised facts of the global economy do not sit well with the general predictions on convergence emanating from mainstream theory-there is no evidence of convergence in the long run. The free market, in and of itself is no guarantee of convergence. The appropriate social infrastructure must be in place if the laggard economies are to catch up with the leaders.
Keywords: Social capacity, Convergence, GDP per capita, Long run, Trade, Factor mobility, Growth, Infrastructure
JEL Classification: D24, E22
Suggested Citation: Suggested Citation