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What is Conditional Convergence

Chapter 12
Handbook of Research on Comparative Economic Development Perspectives on Europe and the MENA Region
Taking account of the determinants of the long-run per capita income, poorer countries tend to grow faster than richer countries.
Published in Chapter:
Diffusion of Technology via FDI and Convergence of Per Capita Incomes: Comparative Analysis on Europe and the MENA Region
Sumru Oz (Koc University, Turkey)
Copyright: © 2016 |Pages: 29
DOI: 10.4018/978-1-4666-9548-1.ch012
Abstract
This chapter analyzes the convergence of incomes towards the FDI home country in Europe and in the MENA region, separately; and the prerequisites to derive benefit from FDI in a comparative manner. The per capita income convergence towards the major FDI home country, US, is estimated higher for Europe compared to the MENA region. However, the differences in the convergence values are not so wide between some sub-groups of these two regions. The absorptive capacity hypothesis, together with the investment capacity explains the discrepancies between not only the two regions as a whole, but also sub-groups within each region. The strong complementary effects between FDI and both absorptive and investment capacity suggest that economic policy aimed at fostering growth should try to benefit more from FDI by increasing the absorptive capacity-enhancing own R&D activities and promoting human capital- as well as by improving investment environment to attract more of it.
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Chapter 5
Productivity Convergence and Asian Trade Blocks
In some cases when the theory of convergence is being tested with empirical data, it was found that this theory does not hold good. But we can accommodate this theory to the empirical observations on convergence if we allow for heterogeneity across economies. In other words, if the steady states differ then we have to modify the analysis to consider a concept of conditional convergence.
Published in Chapter: Productivity Convergence and Asian Trade Blocks; From: Handbook of Research on Global Indicators of Economic and Political Convergence
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Chapter 16
Health Status and Convergence in Developing Open Economies: Is Health Status Converging in Developing Economies?
Absolute Convergence can be captured through the following instance, that is, lower initial GDP will lead to a higher average growth rate. The implication of this is that poverty will ultimately disappear 'by itself'. It does not explain why some nations have had zero growth for many decades (e.g. in Sub-Saharan Africa). Whereas, Conditional Convergence can be captured in the following manner, that is, a country's income per worker converges to a country-specific long-run level as determined by the structural characteristics of that country. The implication is that structural characteristics, and not initial national income, determine the long-run level of GDP per worker. Thus, foreign aid should focus on structure (infrastructure, education, financial system etc.) and there is no need for an income transfer from richer to poorer nations.
Published in Chapter: Health Status and Convergence in Developing Open Economies: Is Health Status Converging in Developing Economies?; From: Handbook of Research on Global Indicators of Economic and Political Convergence
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