Revisiting Global Income Convergence in the 21st Century

TL;DR

This paper analyzes the sources of income convergence between countries from 1980 to 2019, highlighting the dominant role of capital accumulation over TFP improvements in driving convergence in the 21st century.

Contribution

It provides a detailed growth accounting analysis showing that capital convergence, rather than TFP, primarily explains income convergence in recent decades.

Findings

Capital convergence occurred from 1980-2000 and continued after 2000.

Total factor productivity divergence offset early capital gains.

Most income convergence since 2000 is due to capital, not TFP.

Abstract

Recent research has documented a reversal from divergence to convergence in income levels between rich and poor countries after 2000. This paper employs a growth accounting framework to investigate the proximate sources of convergence over the period 1980-2019. I find that while output levels began to converge only after 2000, capital (physical and human) had already been converging during 1980-2000. The divergence in total factor productivity (TFP) during this earlier period offset the gains from capital convergence, resulting in little overall income convergence. After 2000, capital maintained its pattern of convergence, and, unlike in the earlier period, TFP also began to converge. Quantitatively, more than half of the convergence between 2000 and 2019-and nearly all the convergence between 1980 and 2019 outside Sub-Saharan Africa-can be attributed to the convergence in capital rather than to improvements in TFP. These findings highlight that factor accumulation has played a much larger role in driving long-run convergence dynamics than previously documented in the literature.