Glimpsing the End of Economic History? Unconditional Convergence and the Missing Middle Income Trap

55 Pages Posted: 29 Oct 2016

See all articles by Sutirtha Roy

Sutirtha Roy

Government of India - Ministry of Finance

Martin Kessler

Peter G. Peterson Institute for International Economics

Arvind Subramanian

Peterson Institute for International Economics

Date Written: October 1, 2016

Abstract

This paper suggests a reinterpretation of global growth — encompassing notions of unconditional convergence and the middle income trap — in the past 50 years through the lens of growth theory. We innovate by studying two modes of convergence: a classic “Solow” model where poorer countries catch up by growing faster on average; and a new “Wilde” model where catch-up growth is interpreted as growing faster than the frontier country, the United States. We apply these modes to both countries and people as units of analysis. We find that convergence has occurred faster and began earlier than widely believed. This is the case in particular after 2000, and when weighted by population, we also find no evidence of a middle income trap which we defined in two ways: whether it is easier to grow and converge at lower rather than middle levels of income. The second notion is whether having reached middle income status, middle income countries find it more difficult to converge normally and become advanced countries. The last 20-30 years have thus been a golden era of convergence, challenging the new conventional wisdom of secular stagnation.

Keywords: economic growth, convergence, middle income trap

JEL Classification: O10, O15, O47

Suggested Citation

Roy, Sutirtha and Kessler, Martin and Subramanian, Arvind, Glimpsing the End of Economic History? Unconditional Convergence and the Missing Middle Income Trap (October 1, 2016). Center for Global Development Working Paper No. 438, Available at SSRN: https://ssrn.com/abstract=2860872 or http://dx.doi.org/10.2139/ssrn.2860872

Sutirtha Roy

Government of India - Ministry of Finance

North Block
Delhi, AK 110001
India

Martin Kessler

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

HOME PAGE: http://piie.com

Arvind Subramanian (Contact Author)

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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