5 - Postwar Record on Productivity Performance on the Aggregate Level among the Advanced Industrial Countries

Summary

Introduction

The term “aggregate convergence” refers to the gradual diminution of differences in productivity levels for the overall economy of countries over time. Explanations of the productivity catch-up almost all involve the so-called advantages of backwardness or Gerschenkron effect, by which it is meant that much of the catch-up can be explained by the diffusion of technical knowledge from the leading economies to the more backward ones (see Gerschenkron, 1952, and Kuznets, 1973, for example). From this view, technological progress operates through a mechanism that enables countries whose level of productivity is behind (but not too far behind) that of the leading country(ies) to catch up. Through the constant transfer of knowledge, countries learn about the latest technology from one another, but virtually by definition the followers have more to learn from the leaders than the leaders have to learn from the laggards. On the other hand, those countries that are so far behind the leaders that it is impractical for them to profit substantially from the leaders’ knowledge will generally not be able to participate in the convergence process at all, and many such economies will find themselves falling even further behind.

Two noted papers looked at the process of conditional convergence – Barro (1991), and Mankiw, Romer, and Weil (1992). Like Baumol, Blackman, and Wolff (1989), the authors considered a wide range of factors, including investment, education, trade, government spending, and political structure. They found that the investment rate (the ratio of investment to GDP) had a positive and significant effect on the rate of growth of GDP per capita among countries at all levels of development. Another critical factor was education. The two studies showed that the quantity of education provided by an economy to its inhabitants (as measured by school enrollment rates) was another major influence determining the rate of growth of per capita income among a wide range of countries.