Question

The average per Growth Rates of Real, per capita GDP between 2000 and 2008 in Low-income and Middle-income countries where 4.7% and 6.1% respectively. This observation is consistent with the Convergence hypothesis.

Answer 1

in favour of convergence hypothesis.

Arguments:

1. Reduction of marginal returns. Although the deepening of human and physical capital would have to increase per capita GDP, the decreasing return law suggests that as the economy continues to increase its human and physical capital, economic growth will lead to a decline in marginal gains. For example, increasing the average education level of a two-year population from tenth grade to a high school diploma (while keeping all other entries constant) would increase production. One and two-year growth, so that the average person has a two-year college diploma, production will increase further, but marginal growth will be lower. A two-year increase in education, so that the average person will have a four-year degree, will further increase production, but will reduce marginal growth. Similar lessons also apply to physical capital. If the amount of physical capital available to the average worker increases, for example, from $ 5,000 to $ 10,000 (again, keeping all other inputs constant), this will increase the level of output. A further increase from $ 10,000 to $ 15,000 would increase production further, but reduce marginal growth.

Low-income countries such as China and India have low levels of human capital and physical capital, so investment in capital intensity should have a greater marginal impact in these countries than in high-income countries, where capital levels are relatively higher than human and physical Are more. Decreasing yields means that a low-income economy can align with the levels achieved by high-income countries.

2. low-income countries may find it easier to improve their technology than high-income countries. High-income countries must continually find new technology, while low-income countries often find ways to apply technology that have been discovered and understood well. The economist Alexander Gerschenkron (1904–1978) gave the event a memorable name: "the benefits of laxity." Of course, that does not literally mean the benefits of lower standard of living. He said he had the additional ability to hold the country behind him.

Finally, optimists argue that many countries have seen and learned from their fastest growing experiences. Furthermore, once people in a country begin to enjoy the benefits of higher living standards, they are more likely to build and support market-friendly institutions that help provide living standards.