Divergence and Convergence: An Exploration

Abstract

Literature in economic development shows how countries diverge and converge in economic growth owing to technological change and capital accumulation. In this paper, I examine micro level divergence and convergence of best practices of firms within a broadly defined industry. Multinational investment in developing economies is one of the means of technology flows globally. If local firms have a critical level of capabilities and are able to compete with multinational firms this can lead to technological convergence and consequent economic growth. I have reviewed pertinent literature. I have empirically tested some of the underlying propositions with the case of rivalry between a local firm and a multinational firm in India’s two-wheeler industry. The statistical exercise shows a process of convergence of practices of the two firms over a period of 15 years.