Economic Growth: Concitional Convergence: A statistical analysis across regions
Nguyen, Hang T.
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Economic growth has been a concern of every country in the world. Even though each country has different economies with diverse levels of income and different resources, one main goal that every country tries to achieve is economic growth. The growth of a country is not only a concern to itself, but also to other countries. Since international trade, multinational business and foreign investment have become essential parts of the economy, each country plays a role in the overall welfare of the global economy. While the growth rate of a developed economy is pretty stable and often low, we have seen that many individuals are investing their money in developing economies with the expectation that the high growth rate of these economies will benefit them in the future. Developing economies are sometimes expected to grow faster than richer, fully developed economies because they have a lot of resources to be explored, developed and cultivated, thus the prospect of growth in the future. On the contrary, rich economies have already developed their use of resources to the maximum and have little space to improve. The concept of absolute convergence emerges to describe a situation when poor countries grow faster than richer countries. Absolute convergence is not a common phenomenon. For example, in 1990 the GOP per capita of Chile and Egypt were $6,584 and $3,237, respectively. However, Egypt did not grow faster than Chile. Over the next decade, the growth rate of Chile was 3.62%, while that of Egypt was only 2.75%. In 2010 we still see the huge GOP per capita discrepancy between Chile at $13,595 and Egypt at $5,543. So the growth rate does not depend solely on the initial level of income of a country (whether a country is poor or rich), but other factors also play a role. In this paper, we will explore the concept of conditional convergence to discuss the factors that contribute to the growth of a country.