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Convergence, Interdependence, and Divergence

Kemal Derviş

Most feel that we live in an integrated globalized world. But when looking at recent history, what can one really say about the nature of this integration? It seems there are three fundamental trends at work that today characterize the world economy.

The first trend is a new convergence. In his 1979 Nobel Prize lecture, the late development economist Sir Arthur Lewis said, “For the past hundred years the rate of growth of output in the developing world has depended on the rate of growth of output in the developed world. When the developed world grows fast, the developing world grows fast, when the developed slow down, the developing slow down. Is this linkage inevitable?”

Recent data suggest that while there remains linkage, it is now important to distinguish between long-term trends and cyclical movements. Since roughly 1990 the pace of per capita income growth in emerging and developing economies has accelerated in a sustainable manner and is substantially above that in advanced economies. This represents a major structural shift in the dynamics of the world economy.

Recent data suggest that while there remains linkage, it is now important to distinguish between long-term trends and cyclical movements. Since roughly 1990 the pace of per capita income growth in emerging and developing economies has accelerated in a sustainable manner and is substantially above that in advanced economies. This represents a major structural shift in the dynamics of the world economy.

A second fundamental feature in the world economy is cyclical interdependence. Although emerging and developing economies’ long-term trend growth rates have delinked—or “decoupled”—from those of advanced economies over the past 20 years, this has not led cyclical movements around the trend to delink.

New convergence and strengthened interdependence coincide with a third trend, relating to income distribution. In many countries the distribution of income has become more unequal, and the top earners’ share of income in particular has risen dramatically. In the United States the share of the top 1 percent has close to tripled over the past three decades, now accounting for about 20 percent of total U.S. income (see “The World Top Incomes Database” by Alvaredo and others, 2012). At the same time, while the new convergence mentioned above has reduced the distance between advanced and developing economies when they are taken as two aggregates, there are still millions of people in some of the poorest countries whose incomes have remained almost stagnant for more than a century (see “More or Less,” F&D, September 2011). These two facts have resulted in increased divergence between the richest people in the world and the very poorest, despite the broad convergence of average incomes.

Read the full article in Finance and Development »

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