Principles of Macroeconomics / Unit 4 MAC 0323 worked example, 60 to 90 seconds
Reading a Convergence Claim
The idea
Convergence claims go wrong in three predictable ways, so check each before accepting one. First, is the growth measured per person or in total? A populous country can lead the world in total growth while its people gain slowly. Second, over what period? Convergence claims are sensitive to the decade chosen, and a group that converged in one decade may have diverged in the next. Third, how fast is the catching up? A gap can close steadily and still take a lifetime, because the comparison is between two compounding quantities.
In practice
Worked example: a rich country at forty thousand growing two percent a year, and a poor one at four thousand growing seven percent. After thirty years the rich country reaches about seventy-two thousand and the poor one about thirty thousand. The ratio has fallen from ten to about two and a half, which is real convergence, and the absolute gap is still over forty thousand.
Where people slip
Notice that both statements are true at once: the ratio narrowed sharply and the gap in dollars widened for years before narrowing. Which one a claim reports decides whether convergence sounds fast or hopeless.
Your place on the trail
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Builds on
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