Jones: Convergence Revisited

CI Jones, “Convergence Revisited,” Journal of Economic Growth (1997).

"The recent literature on convergence has departed from the earlier literature by focusing on the shape of the production function and the rate at which an economy converges to its own steady state. This article uses advances from the recent literature to look back at the question that originally motivated the convergence literature: what will the distribution of per capita income look like in the future? Several results are highlighted by the analysis, including the suggestion that there is little reason to expect the United States to maintain its position as world leader in terms of output per worker" (131).

Jones identifies two strands of convergence literature. The first, stemming from Abramovitz ('86) and Baumol ('86) explores the phenomena of rich country convergence without global convergence. Another school of thought, stemming from the work of Barro ('91) and Mankiw, Romer and Weil ('92) explores the effects of convergence after factor accumulation is normalized, with convergence taking place globally at about 2%. "Much of the later empirical work on growth has grappled with interpreting this finding in the context of neoclassical and endogenous growth theory and with estimating parameters related to the shape of the production function. in this later work, however, the empirical growth literature has largely neglected the question that motivated the focus on convergence in the first place. Countries are approaching different steady states at a common rate, but how different are the steady-state values that they are approaching?" (131).

Through a neoclassical methodology, this article explores steady state income per capita as being a function of population, physical capital, human capital and technological growth/investment rates. Three conclusions appear from this: many of the explored income distributions are the very similar to the 1990 distribution; this general overlap does not mean that there is not much of interest at the margins: many newly industrializing countries and OECD countries have not fully reached their steady-state; and finally, total factor productivity emerges as a crucial determinant of income distribution.

"Finally, the model predicts a great deal of 'overtaking' in per capita incomes. The analysis emphasizes that simple neoclassical growth models are consistent with a kind of growth miracle and with changes in leaders in the world distribution of income. In general, the analysis considered here suggests that there is no reason to think that the United States will continue to have the world's highest output per worker, observed in both 1960 and 1990. Economies such as Spain, Singapore, France, and Italy are examples of economies with output per worker predicted to be 9 to 40 percent higher than in the United States, based on current policies" (132)..