In recent debates: an article on our website recentlyaddressed the issue of economic convergence among eurozone countries. Here, we explore the concept of economic convergence by presenting its various facets.
In order to explain the notion of « converging countries, » we have identified five concepts of convergence found in academic literature. All of these approaches ultimately seek to assess whether the living standards of developing economies are converging over time with those of developed countries.
1. Absolute convergence: Have initially poor economies experienced higher per capita growth rates than initially rich economies? If this hypothesis is verified, there is « absolute convergence. »
2. Conditional convergence: convergence here means the convergence of each economy towards its own equilibrium path. In other words, a country’s per capita growth rate is higher the further it is from its long-term equilibrium path. Even if convergence between countries is not directly at issue, there is implicit absolute convergence if countries have the same long-term equilibrium path.
3. β-convergence (Barro and Sala-i-Martin, 1992): convergence applies if the initially poor country grows faster than the initially rich country, so that per capita incomes converge (absolute convergence). In this case, the β coefficient is positive and measures the speed of absolute convergence.
4. σ-convergence (Barro and Sala-i-Martin, 1992): convergence occurs if the dispersion of per capita income among a group of countries (represented by the σ coefficient) decreases over time. In other words, convergence occurs when per capita GDP converges toward the sample mean.
5. Convergence clubs: this approach allows us to consider catch-up phenomena limited to certain groups of countries. In other words, when certain economies have the same structural characteristics, they can converge if their initial conditions are similar. In this respect, the most telling example of a convergence club is that of emerging countries. Indeed, emergence would thus constitute a transition and an intermediate stage between divergence and convergence with rich countries.
Julien M.
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