Prichett, Lant (1997)

GDP = private consumption + gross investment + government spending + net exports

The GDP growth rate is the percentage change in GDP over time.

Gross domestic product is used to measure the standard of living of

countries and to compare economies.

In any period, the economies of countries that start off poor generally grow faster

than the economies of countries that start off rich. As a result, the national

income of poor countries usually catches up with the national income of

rich countries.Causes: diminishing returns, existing

technologiesExamples: Singapore, Hong Kong, South

Korea and Taiwan

Source: Madison database

GDP/capita over Time for the Richest and Poorest Countries

National Income InequalityGDP Growth Rates

Or

Over the past 150 years or so, countries with low GDP/capita have not been catching up to countries with high

GDP/capita

Prichett compared the GDP growth paths of the richest poorest economies from

1870 to 1990

Pritchett established a lower bound for GDP/capita at $P 250 (1985 ppp)

1. No recorded GDP/capita has ever been consistently lower then $P 250

2. $P 250 = $P 0.70/day

3. A population living on less than $P 0.70/day would be too sick to expand

Comparing the GDP growth rates of the richest and poorest showed that rich

countries are getting richer at a faster rate than poor countries

Richest: GDP/capita growth = 2%/yearPoorest: GDP/capita growth = 1%/year

Prichett’s focus is on the two extremes, between which there is divergence

There is convergence within groups of economies (i.e. within the OECD, or between the

poorest economies)

Poverty trap: circumstances that keep countries from breaking out of poverty: Technologies: capital and knowledge

Poor infrastructure Closed Markets

Corruption War

This article approaches comparative changes in national income inequality

using simple terms

Article argues against the norm, showing that convergence between the richest

and poorest economies is not happening

This article raises awareness about persistent national income inequality

1. What accounts for continued per capita growth and technological progress of those leading countries at the frontier?

2. What accounts for the few countries that are able to initiate and sustain periods of rapid growth in which they gain significantly on the leaders?

3. What accounts for why some countries fade and lose the momentum of rapid growth?

4. What accounts for why some countries remain in low growth for very long periods?