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Economic Growth: Glimpsing the End of Economic History?
Arvind Subramanian Peterson Institute for International Economics and Center for Global
Development
World Bank Conference on New Growth Strategies October 13, 2014
Summary
• Unprecedentedly, world is glimpsing the End of Economic History, in terms of unconditional convergence
– Broad, almost universal, in scope,
– Substantial in magnitude;
– Accelerating over time; and
– Preceding the go-go oughties and enduring beyond the recent crises
• Will this continue and at what pace?
Solow-Country-Convergence Since the early 1990s, poorer countries have, on average, been growing
faster than richer ones
Solow-People-Convergence Since the early 1980s, incomes of poorer people have, on average, been
growing faster than those of richer people
Solow-People-Convergence (w/o Chindia) Since the early 1990s, incomes of poorer people have, on average, been
growing faster than those of richer people
Wilde-Convergence
• “We are all in the gutter but some of us are looking at the stars”
• Compare growth performance relative to frontier (US)
• Why? – Middle-income trampoline obscures performance of low-income countries
– Dynamics of Solow convergence too rigid
• 𝑊𝑖𝑙𝑑𝑒𝑐𝑜𝑛𝑣 = 𝑔𝑖 − 𝑔𝑈𝑆𝑖
• [𝑦 = 𝛽 ln 𝑦∗ 𝜃 − ln 𝑦
• 𝑆𝑜𝑙𝑜𝑤𝑐𝑜𝑛𝑣 = 𝛽]
Wilde-Country-Convergence Countries have been catching up with the frontier selectively since 1950, but that has become nearly universal since the early 1990s, and occurring at a
fast and accelerating pace
Wilde-People-Convergence People in poorer countries have been catching up with the people at the
frontier selectively since 1950, but that has become nearly universal since the early 1990s, and occurring at a torrid and accelerating pace
Wilde-People-Convergence (w/o Chindia) People in poorer countries have been catching up with the people at the
frontier selectively since 1950, but that has become nearly universal since the early 1990s, and occurring at a rapid and accelerating pace
Can Convergence Continue? External Headwinds
• Weakening West
• End of cheap capital
• End of commodity boom
• Energy discoveries
• Unfavorable technological developments and limits to globalization (Rodrik, 2014)
Trade Hyperglobalization
0
5
10
15
20
25
30
35
18
70
18
90
19
13
19
29
19
39
19
50
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
Merchandise trade
Total trade
Total trade - in value added terms
First globalization
Deglobalization
Reglobalization
Hyper-globalization
De-Industrialization 0
10
20
30
40
50
Em
plo
ym
en
t sh
are
,in
du
str
y (
%)
6 7 8 9 10 11GDP per capita (log; PPP dollars)
1988 2000
2010
Services Versus Manufacturing Dilemma
High productive and dynamic sectors are also skill-intensive
Skill based growth induces human capital formation
0
20
40
60
80
100
120
1971 1976 1981 1986 1991 1996 2001 2006 2011
Gro
ss e
nro
llme
nt ra
te, in
pe
rce
nt
Indian Primary
Indian Secondary
Indian Tertiary
Note: The gross rate takes into account students out of the age range population which are still in a given
level ( e.g. repeating students) which explains that it can be above 100%
Considerable Distance to Frontier
Per capita GDP of selected developing countries relative to that of US
Conclusions
• Most countries appear to have cracked the early “technology” of convergence”
• And they are still far from frontier
