A Macroeconomics Reader

By Brian Snowdon; Howard R. Vane | Go to book overview

24

Technological catch up and diverging incomes

Patterns of economic growth 1960-88

Steve Dowrick

Economic Journal (1992) 102, May, pp. 600-10


INTRODUCTION

The pattern of worldwide economic growth since the early 1960s displays diverging growth paths. Most economies shared the experience of high growth rates in the 1950s and 1960s, reverting in the 1970s and 1980s to rates which are more normal by historical standards. At the same time, however, income disparities across the national economies of the world have been widening. The richer economies have, in per capita terms, been growing faster than the middle-income economies, which in turn have out-paced the poorest economies. Moreover, within each of these broadly defined groups, income levels have been diverging.

The divergence of growth paths of GDP per capita is perhaps surprising. The post-war period has witnessed an explosion in world trade, communications and the dissemination of information—all factors which might be supposed to both encourage and enable the technologically backward economies to learn from and adopt the production techniques of the more advanced. At the same time, the integration of capital markets, the emerging dominance of transnational corporations and the development of both transport and communications technology might be expected to lead to growth-enhancing investment in the poorer, low-wage economies.

The first of these conjectures is supported by an analysis of the sources of economic growth. There is indeed evidence to support the technological spillover hypothesis: the less advanced economies have tended to experience faster growth in multi-factor productivity (although not necessarily with respect to manufacturing technology in the poorest economies). It appears, therefore, that income divergence has occurred in spite of technological catching up. The proximate causes are lower rates of investment in the poorer countries allied to declining rates of labour force participation in the poorer countries and rising participation in the richer countries.

There are several explanations for the divergence of the growth paths of capital and labour inputs. Employment growth, relative to total population, is strongly enhanced in the medium term by the demographic transition from high to low rates of population growth. The poorest group of coun-

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