Convergence
Also called: Catch-up effect · Topic: Economic Growth Theories and Business Cycles · NCERT: Beyond NCERT
Meaning
Convergence is the idea that poorer economies grow faster than richer ones and so close the gap in per-capita income. The logic is diminishing returns to capital: where capital is scarce, each new unit adds more output. Absolute convergence says all poor economies catch up. Conditional convergence says they catch up only with economies that have similar fundamentals, such as saving rates, population growth and institutions.
Example
Indian states show the opposite pattern, called divergence. Richer states such as Maharashtra, Gujarat, Karnataka and Tamil Nadu have pulled further ahead of Bihar and Uttar Pradesh, even though they all share one common market.
Don't confuse with
- β-convergence vs σ-convergence: β-convergence means poorer economies grow faster. σ-convergence means the spread (dispersion) of incomes across economies actually narrows. You can have the first without the second.
Related concepts
- Solow growth model
- Steady state
- Capital deepening
- Growth accounting
- Total factor productivity
- Endogenous growth theory