225
Cyclists in Beijing, China, eye a
Ferrari parked in the cycling lane.
China and India have joined the club
of converging (“catch-up”) countries.
See also: Diminishing returns 62 ■ Demographics and economics 68–69 ■ The emergence of modern economies 178–79 ■
Development economics 188-93 ■ Technological leaps 313 ■ Inequality and growth 326–27
POST-WAR ECONOMICS
country. The upshot is that growth
is higher in poor countries, and
their living standards catch up
with those of rich countries in an
effect economists call convergence.
Since the 1950s a few Asian
countries have caught up with the
West, but many African countries
have fallen farther behind. Solow’s
assumptions aren’t always
satisfied. Technology is not
universal: even when knowledge is
accessible there may be barriers to
using it. Capital doesn’t always flow
to poor countries; for example,
weak property rights and political
instability can put investors off.
Finally, the endogenous growth
theory, developed in the mid-1980s,
goes beyond Solow’s model by more
realistically analyzing the effects of
technological change. In this theory
new techniques developed by one
firm can benefit other firms. This
can lead to increasing returns on
investment. So, rather than
convergence, the result may be
divergence between countries.Living standards
Convergence can be measured
using factors other than income.
Health and literacy are related to
income but imperfectly so: some
poor countries have relatively
healthy and educated populations.
Life expectancies can increase
dramatically through simplemedical interventions such as
immunization. So, in non-income
aspects of living standards, poor
countries have had more success
in catching up.
Despite this, many economists
remain focused on explaining
income differences. Attention has
shifted away from a concern with
capital and technology toward
the institutional prerequisites
needed for developing countries
to converge with richer ones. ■Robert Solow Robert Solow was born in New
York in 1928. His experience of the
Great Depression made him want
to understand how economies
grow and how living standards
can be improved. He entered
Harvard University in 1940 but
left to join the US Army in 1942,
serving in World War II. After
returning, he was mentored by
the economist Wassily Leontief,
and his PhD thesis won Harvard’s
Wells Prize—$500 and a book
publication. Solow thought he
could do better than his thesis,
so he never published it or cashed
his check. In the 1950s he took aposition at the Massachusetts
Institute of Technology (MIT),
where he published his ideas
outlining a new model of
economic growth. This research
inspired new fields in the study
of economic growth and earned
him the 1987 Nobel Prize.Key works1956 A Contribution to the
Theory of Economic Growth
1957 Technical Change and the
Aggregate Production Function
1960 Investment and Technical
Progress