Question

WHAT IS CONVERGENCE BETWEEN COUNTRIES?

WHY DOES THE STANDARD SOLOW MODEL IMPLY CONVERGENCE?

WHAT DOES IS THE DIFFERENCE BETWEEN CONDITINSL SND INCONDITIONSL CONVERGENCE?

Answer 1

( Part-1 )

In economics convergence has two kind of meaning. The first kind refers to the reduction in dispersion of levels of income across economies. The second kind refers to the scenerio when poor countries grows faster than the rich one.

The second one comes in the most use when we talk about two countries. Convergence between two countries simply means that the per capita income of the poor country will tend to grow at faster rates than the ticher country.

As a result all economies should eventually converge in terms of the per capita income. There are many examples of countries which have converged with developing countries.

( Part-2 )

The convergence in Solow Model implies that the real interest rate and the growth rate of income per capita in an economy will move together.

If two countries differ in the fundamental characteristics, than the Solow model predicts conditional convergence. BY this it means, that a low income country may be able to catch up with a richer country that also have a low saving rate, but it can never catch up with the rich country that has a high saving rate. As poor countries have less capital per worker thus the savers in all countries will be able to earn the highest return by investing in the poor countries.

( Part -3 )

Conditional convergence simply means that a country or a region is converging to its own steady state on the other hand unconditional convergence which is also known as the absolute convergence implies that the countries are converging to a common steady level of income.

The word in Absolute( Unconditional convergence ) means that a series will converge even when you take the absolute value of each and every term but on the other hand conditional convergence means that the series converges but not absolutely.

For example lets take a series ( -1 )ⁿ / n converges but it converges in a certain condition only. On the other hand if we have absolute convergence this series converges even if the series is not alternating.

Thankyou, Hope it helped. Do leave a thumbsup

Cheers