Economic Divergence

Economic Divergence

Course Information

  • Course: POLS 2200

  • Instructor: Prof. De Micheli

  • Date: March 16, 2026

Announcements

  1. Reading Assignment: Read Karl for Wednesday.

  2. Quiz Due: Reading Quiz 9 due Friday.

  3. Film Review: Next film review due on 3/29.

  4. Midterm Grades: Midterm grades posted today.

Midterm Grades

  • Mean Score: 84

  • Median Score: 85

  • Distribution of Grades:   - A's: 31%   - B's: 44%   - C's: 18%   - Below C: 8%

  • Performance Insight:   - Multiple choice questions performed strongly.   - Most points lost on incomplete short answer responses.   - Some struggle with completeness on essays.

Final Exam Update

  • Observations from Midterm:   - Similarity in responses noted across several short answers.   - Responses to the endogeneity question were indicative of understanding.

  • Plagiarism Note: Use of generative AI and similar tools is considered plagiarism.

  • Exam Details:
      - Format: In-person, pen and paper.   - Date and Time: Tuesday, April 28th, from 10:30am to 12:30pm.   - Location: SW 134.   - Materials Required: Bring a blue book, available for purchase at $0.75 in campus store.

Agenda for Class

  1. Finish slides on measuring development.

  2. Discuss patterns of economic divergence.

  3. Explore sources of economic divergence.

Wealth vs. Inequality

Understanding Economic Growth

  • Key Consideration: It is essential to not only analyze how economies grow or develop but also to understand how growth is distributed across societies.

  • GDP Growth Implication:   - Simply measuring GDP growth does not necessarily indicate an increase in welfare within society.   - Realization that gains from growth might not be distributed equally, meaning that GDP growth does not correlate directly to increased social expenditure.

Gini Index

  • Definition: A measure of asset distribution.   - 1: Represents perfect inequality.   - 0: Represents perfect equality.

Comparative Income Gini and GDP per Capita

  • Graphical Representation:
      - A depiction with countries on the x-axis showcasing GDP per capita and Gini coefficients on the y-axis, revealing the relationship between income inequality and GDP.

Wealth vs. Happiness

Conceptual Perspective

  • Common Saying: Money doesn’t buy happiness.

  • Alternative View: Development can be conceptualized as “freedom” or life satisfaction.

  • Notable Thought: "Development as freedom" articulated by Amartya Sen highlights the link between development and increased personal freedoms and happiness.

Life Satisfaction vs. GDP per Capita, 2020

  • Analysis Framework:   - The vertical axis shows the national average of self-reported life satisfaction scores (scale 0-10).   - The horizontal axis reflects GDP per capita (adjusted for inflation and cross-country price differences).

  • Insight from Data: Countries like the Netherlands or the United States reported high life satisfaction, while others, such as Ethiopia or Nigeria, exhibit lower scores despite varying GDP levels.

Political Economy Overview

Major Themes

  • Central Question: The fundamental query concerning states focuses on their role in the economy: Should states pursue more regulation and protectionism or less?

  • Complexity of Economies: Modern economies are intricate and typically exhibit a blend of both “liberal” and “planned” economic features.

  • Performance Assessments: Evaluation of economic performance can differ significantly based on context and reference points.

Divergence in Economic Growth

  • Key Inquiry: What drives divergence between countries in economic performance?

  • Simple Answer: Growth patterns explain much of this divergence, with rich countries maintaining consistent growth while others have not.

Historical GDP Growth Comparison

Growth Rates (1870-1989)

  • Key Data Points on Per Annum Growth Rates:   - Various developed countries (Australia, USA, Germany, etc.) displayed differing growth rates across the years, with averages calculated from historical data.   - Notably, Australia's growth from 1870-1960 stood at 0.90%, increasing to 2.43% from 1960-1980.

Divergence Simulation (1870-1985)

  • Highlighted Data:   - Divergence simulation depicted the widening gap between the richest and the poorest nations, illustrating increasing disparities in GDP per capita over the timeframe.   - Examples of GDP per Capita: USA versus Chad demonstrates the extreme disparities.

Factors Influencing Economic Divergence

Cultural Explanations

  • Protestant Ethic: Viewed as a significant cultural underpinning for the development impetus in Western economies, reinforcing the value of hard work and industry.

  • Critical Questions: Are cultural imperatives shaping economic advancement, or is it the case that economic conditions have in turn influenced cultural values?

Early Development

  • Context of Initial Growth: Historians cite the Industrial Revolution as the pivotal moment for differentiation in economic advancement across nations.

  • Efficiency and Innovation: Technological advancements enhanced production efficiency and expanded the production possibilities frontier (PPF).

Advantages of Backwardness

  • Concept Overview: Economies characterized as “backward” can leverage innovations from developed nations without incurring initial costs, thus enabling instances of rapid growth termed “late development.”

Divergence Drivers Revisited

Economic Models

  • Dependency Theory and Colonialism: Imperialistic practices led to wealth extraction from colonies, reinforcing the inequality between colonizers and the colonies.   - Core vs. Periphery: The global economic framework delineates core (developed) countries that monopolize manufacturing and periphery (developing) countries that primarily supply raw materials.   - Terms of Trade: Dependency theorists argue that periphery countries see a declining ratio on terms of trade as raw material prices diminish relative to manufactured goods costs.

Institutional Influence

  • Sokoloff-Engerman Hypothesis: Explores how geography and institutions jointly influence political and economic development, leading to varied outcomes in different regions.   - Post-colonial Impact: Former colonies often exhibit weak institutions, fluctuating governance, and susceptibility to corruption and inefficiency.

Economic Growth Paths in Developing Regions

  • Import Substitution and Export-Oriented Industrialization: These models represent divergent strategies of economic development based on varying degrees of state involvement in market mechanisms.   - Structural Adjustment Policies: A liberal approach that encourages economic opening and foreign investment, sometimes condemned for not achieving significant development results.

Summary of Theoretical Perspectives

  • The variety of approaches elucidates a consensus where institutions significantly influence economic divergence, with numerous paths and nuances present in individual country cases.

Glossary of Terms

  • Welfare vs. Wealth

  • Inequality vs. Wealth

  • Indicators of Health

  • Indicators of Education

  • Human Development Index

  • Life Satisfaction

  • Economic Divergence

  • Colonialism

  • Dependency Theory

  • Income Traps

  • Poverty Trap

  • Middle-Income Trap

  • Inclusive Institutions

  • Extractive Institutions

  • Advantages of Backwardness

  • Core vs. Periphery

  • Terms of Trade

  • Import Substitution Industrialization

  • Export-Oriented Industrialization

  • Structural Adjustment

  • Sokoloff-Engerman Hypothesis

  • Market Institutions (creating, regulating, stabilizing, and legitimizing)