Conditional Convergence

Standard Models of Growth in Macroeconomics

Factors of Growth

• Role of labor

• Physical capital

• Technology

Distinguishing Economic Growth

• Increase in real GDP vs. Actual Growth

  • Increase in Real GDP: Temporary boost in production.

  • Actual Growth: Increase in production capacities.

• Growth occurs when the economy expands, not merely through a temporary uptick in production.

Overview of Conditional Convergence

• Concept: Countries with varying levels of income tend to converge economically.

• Different countries have different growth dynamics, which influences their real GDP levels.

• Larger economies and smaller economies show divergence in growth potentials.

• Convergence Mechanisms:

  • Countries lagging behind often catch up due to factors like technology transfer.

  • Economies shift from low income to high income as labor and capital improvement occurs.

Implications of Growth and GDP Measurement

• Growth Development:

  • Best measured by the aggregate output produced.

  • Method may have blind spots depending on comparisons across countries.

• Economic Size and Individual Prosperity:

  • Larger economies theoretically translate to a larger pie for all individuals.

  • There is an assumption that GDP growth will lead to better quality of life and consumption capacities for citizens, forming a correlational relationship.

• Observation:

  • Examination of macroeconomic data supports the notion that GDP increases can correlate with improvements in societal well-being and individual prosperity.