The invalidity and critics to Pritchett’s theory of ‘Divergence: Big time’

Abstract

The agenda of the recent G20 summit in Seoul, Korea, focused on economic recovery, sustainable world growth, and development, reveals that globalization and its effects are at the heart of the most important international debates. While world leaders are concerned with managing the future effects of globalization, it is important to assess whether the economic growth in developed countries has so far allowed poorer countries to follow the same path and develop themselves since the modern era (1870s). Using empirical research conducted by other economists, as well as his own assumptions, Lant Pritchett, author of Divergence: Big time, argues that despite examples of convergence in income among some regions (convergence among developed economies and among some developing countries), the global trend from 1870 until 1990 is one of significant divergence between developed and developing countries. Although his claim is supported by some empirical evidence in the divergence of income between these two sets of countries, it does have limitations. Going beyond the purely economic reasoning, I find that there has in fact been convergence in the indices that best describe development in a holistic manner.

Empirical evidence has shown that developed and developing countries have experienced vastly different rates of economic progress in the period from 1870 to 1990. Pritchett draws a clear distinction between developed countries, which form one closed group of now (and then) rich countries, and developing countries, which are defined in the negative as simply not being in the developed country group. Empirical studies conducted by Maddison (1995) show convergence of long-run growth rates and income per capita among the set of the 17 most developed countries, marked by their relative stability since the 1870s. Estimates of per capita income since 1870 show that the gap between the two categories of countries has widened dramatically, as evidenced by the notable facts that the income per capita was five times bigger in the developed countries than in the developing ones in 1990 and that the ratio between the richest and the poorest country went from 8.3 to 38.5 from 1870 to 1960 (a 4.7 fold increase). However, divergence did not occur in a linear way, as pointed out by Bourguignon and Morrisson. The authors argue that the inequality in income per capita was the most significant until World War II, peaked in the 1950s but later stabilized , a claim supported by Pritchett.