Divergence, Big Time

Divergence, Big Time

Volume 11, Number 3—Summer 1997 | Lant Pritchett
Lant Pritchett's article "Divergence, Big Time" highlights the significant gap in economic productivity and living standards between developed and less developed countries over the past century. From 1870 to 1990, the ratio of per capita incomes between the richest and poorest countries increased by about five times, and the income difference between the richest country and all others grew by an order of magnitude. This divergence is attributed to different long-term economic performance patterns among these countries. The "developed" countries, primarily European nations and Japan, have experienced rapid and consistent growth rates, leading to some convergence in absolute income levels. In contrast, the "developing" countries have shown slower growth rates, resulting in divergence. The standard deviation of (natural log) GDP per capita across all countries has increased by 60 to 100 percent since 1870, despite convergence among the richest countries. Pritchett uses historical data and purchasing power parity (PPP) adjustments to estimate lower bounds for per capita GDP in less developed countries, concluding that a minimum of $250 per capita in 1870 is plausible. This estimate is supported by historical poverty lines, caloric intake requirements, and infant mortality rates. The divergence is further illustrated through simulations, showing that the gap between the richest and poorest countries has widened significantly over time. The article also discusses the variability in growth rates among less developed countries, with some experiencing explosive growth, while others stagnate or decline. It emphasizes the need for coherent models to understand how countries can overcome disadvantages and achieve sustained growth, particularly in poor countries. The conclusion highlights the challenges in developing universal growth theories and the importance of tailored policies for different situations.Lant Pritchett's article "Divergence, Big Time" highlights the significant gap in economic productivity and living standards between developed and less developed countries over the past century. From 1870 to 1990, the ratio of per capita incomes between the richest and poorest countries increased by about five times, and the income difference between the richest country and all others grew by an order of magnitude. This divergence is attributed to different long-term economic performance patterns among these countries. The "developed" countries, primarily European nations and Japan, have experienced rapid and consistent growth rates, leading to some convergence in absolute income levels. In contrast, the "developing" countries have shown slower growth rates, resulting in divergence. The standard deviation of (natural log) GDP per capita across all countries has increased by 60 to 100 percent since 1870, despite convergence among the richest countries. Pritchett uses historical data and purchasing power parity (PPP) adjustments to estimate lower bounds for per capita GDP in less developed countries, concluding that a minimum of $250 per capita in 1870 is plausible. This estimate is supported by historical poverty lines, caloric intake requirements, and infant mortality rates. The divergence is further illustrated through simulations, showing that the gap between the richest and poorest countries has widened significantly over time. The article also discusses the variability in growth rates among less developed countries, with some experiencing explosive growth, while others stagnate or decline. It emphasizes the need for coherent models to understand how countries can overcome disadvantages and achieve sustained growth, particularly in poor countries. The conclusion highlights the challenges in developing universal growth theories and the importance of tailored policies for different situations.
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