Revisiting convergence: A research note.

Area of Science:

• Economics
• Development Studies
• Econometrics

Background:

• Recent studies indicate a decline in global income inequality.
• The significance of this trend is questioned by examining the role of initial conditions in convergence dynamics.
• Inequality dynamics exhibit a tendency for extreme distributions to moderate over time.

Purpose of the Study:

• To investigate the influence of initial income distribution on convergence trends.
• To determine if observed global income convergence is an artifact of initial inequality levels.
• To analyze the long-term outcomes of GDP per capita (PC) growth dynamics based on initial conditions.

Main Methods:

• Application of convergence principles to GDP PC trends in 127 countries (1980-2010).
• Utilizing counterfactual analysis by manipulating initial income inequality levels.
• Holding country-specific growth rates constant to isolate the effect of initial conditions.

Main Results:

• GDP PC growth dynamics result in convergence or divergence solely based on the initial income distribution.
• A moderate level of initial inequality acts as a transition point (Gini=.365 population-weighted, Gini=.377 unweighted).
• Observed convergence is attributed to substantial initial income gaps, not inherent growth dynamics at moderate inequality levels.

Conclusions:

• The recent decline in global income inequality is primarily driven by large pre-existing disparities.
• Convergence would not have occurred at more moderate initial levels of inequality.
• Pre-1950 data show divergent growth patterns, unaffected by initial conditions, contrasting with the recent period.