Sunday, April 26, 2009

Divergence, Big Time.

Lant Pritchett will be speaking on Thursday, April 30th at 4:45 PM in PNW 212! His lecture is titled: "Is Migration Good for Economic Development? How Could You Even Ask?" He will be discussing the benefits of labor migration.

I was going to do background research and blog about labor migration beforehand, but I think I'll wait for Pritchett to give his lecture so I can blog about it in one sitting.
For now, I decided to talk about the Lant Pritchett's paper on income divergence, because that's interesting too. And it's one of the first papers I read for Econ Growth.

Many people have argued that there is an "advantage to backwardness," as poorer countries grow at faster rates than richer ones. However, in his paper, "Divergence, Big Time," Pritchett argues that "convergence" is tautological because when one examines countries that are rich now, they have to have either been historically rich while growing at a relatively steady rate, or historically poor and growing at a faster rate. Thus, the finding of convergence is tautological.

Pritchett finds that there is more evidence to suggest that countries have diverged, rather than converged. He uses a lower bound per capita GDP of $250[purchasing power parity] in order to impute missing 1870 income data for such countries as Ethiopia, Uganda and Tanzania. He justifies his $250 lower bound with a few methods. For example, the lowest level of caloric intake ever recorded is 1,443 calorie/person in Chad in 1984. Bairoch (1993) reported that $291 (@ market exchange rates) was necessary for minimum food intake. Note, Bairoch's estimate is higher than Pritchett's. Pritchett then calculates the income gaps between the rich and poor countries and finds that the average absolute gap in incomes increases from $1,286 to $12,662. Since Pritchett's lower bound of $250 is probably lower than the actual lower bound, his results actually understate the extent to which countries have diverged.

So perhaps there is no "advantage to backwardness." Maybe poorer countries have the potential to grow at faster rates and "catch up" to richer countries, but Pritchett's evidence suggests that the realization of this potential is rare. Twenty-five percent of 60 countries with initial per capita GDP of less than $1000 in 1960 had growth rates less than zero and a third have had growth rates less than 0.5%.

You can find growth rates of real GDP per capita for different countries here.

This is a rather sad blog post.
This, however, is ridiculous!

In other news: I finished my VERY LAST ECON 321 p-set last Friday! I got to make butterflies.

Swine flu scares me.

The Yankees are breaking my heart.

I still need to think of something to buy for Mother's Day. [May 10th, in case you forgot]

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