Working Paper: NBER ID: w29046
Authors: Rohini Pande; Nils T. Enevoldsen
Abstract: Early tests of cross-country convergence found evidence only for conditional convergence. In contrast, with more recent data, Kremer, Willis, and You (2021) find evidence that since the mid-1980s there has been a trend towards unconditional convergence culminating in absolute convergence since 2000. Additionally, they find suggestive evidence that one of the major drivers of this trend is an underlying convergence towards development-favored policies. We discuss the implications of this result through the lens of individual welfare and poverty, concluding that the news is not as welcome as it may seem for the world’s poor. We point out that absolute convergence has happened contemporaneously with rising within-country inequality, resulting in more of the world’s poor living in middle-income countries. Next, we argue that domestic redistribution is essential to spread the benefits from industrialization, since the labor share of manufacturing isn’t reaching the heights it did in industrialized countries. Finally, we argue that the democratic institutions that can facilitate this redistribution themselves face headwinds. Democratic backsliding, the Covid-19 pandemic, and a bleak climate outlook all present obstacles to transforming economic growth into economic justice for the poor.
Keywords: Convergence; Poverty; Inequality; Economic Growth; Democratic Institutions
JEL Codes: E02; O43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic growth (O49) | unconditional convergence (C62) |
| unconditional convergence (C62) | absolute convergence (D52) |
| convergence towards development-favored policies (F68) | individual welfare (I30) |
| absolute convergence (D52) | poverty (I32) |
| domestic redistribution (D39) | spreading benefits of industrialization (O14) |
| democratic institutions (P16) | domestic redistribution (D39) |
| democratic backsliding (D72) | challenges to democratic institutions (D72) |
| COVID-19 pandemic (H12) | challenges to democratic institutions (D72) |
| increasing within-country inequality (F61) | effects of absolute convergence (F62) |