Corrupt Clubs and the Convergence Hypothesis

Abstract

Convergence is defined as the decreasing gap of GDP growth rates between leading and lagging countries. This thesis is based on the Veblen’s idea of “Advantages of Backwardness”. It states that a less developed country tends to grow, at a rate which is inversely proportional to its initial GDP per capita; that is, faster than more advanced countries. There are several reasons for this convergence across different countries. First, there is a scope for poor nations to absorb existing technology and to catch up advanced countries if the gap between country’s technologies is larger. Second, the development process is often characterised by a shift of resources from low productivity agriculture sector to high productivity industrial sector. The process certainly benefits more the poor nations because the capacity for such shift is more in poor countries than in rich countries.1