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Macroeconomic convergence, development and growth - Essay Example

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This paper talks about the convergence phenomenon, which implies that poorer economies per capita incomes and GDP tend to grow at faster rates than richer economies. The rate of convergence highly depends on the initial condition of the economy as well the growth potential of the economy…
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Macroeconomic convergence, development and growth
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Macroeconomic convergence, development and growth

Download file to see previous pages... This paper offers a comprehensive analysis of the concept of macroeconomic convergence, and outlines empirical facts, that confirm this hypothesis. Macroeconomic convergence is a process adopted by the adjoining economies across regions for economic integration amidst themselves. The trade and growth models are two models depicting economic integration and are related to convergence of income. Macroeconomic convergence could be reached more rapidly when there is an equitable distribution of wealth .
Some of the most vigorous of all attempts towards macroeconomic convergence is noted among the African economies which are pestered by poverty. These nations have realized the importance of macroeconomic convergence to make their meek presences felt and to ensure monetary, financial and political stability as well as security
There are two kinds of macroeconomic convergence. Sigma-convergence signifies the rate at which the disparity in the income levels of nations is reducing, beta-convergence implies the rate at which the poorer nations are growing compared to their richer counterparts
Macroeconomic convergence could be brought about by drawing integration between the macroeconomic policies of the underlying nations. The nations might take an initiative to characterize themselves with similar economic features so as to lend themselves on comparative grounds with their neighbours
The concept of convergence is found to be popular among the poorer nations of the world whose primary aim is to raise their respective per capita incomes.
Economic growth and macroeconomic convergence: an empirical investigation Integration of national as well as regional economies with world economy is the salient feature over many years. Two models of economic integration which relates to income convergence are firstly growth models and secondly trade models (Kim, 1997, p.4). According to the neoclassical Solow model of growth, the regional level of income varies due to the different capital labour ratios. Whereas the Hecksher Ohlin trade model says that the income varies across the regions due to the difference in the factor prices and factor endowments (Kim, 1997, p.5). Income convergence occurs due to trades in goods and economic integration via equalisation in prices. Factor endowments vary across the regions and therefore various regions specialise in different industries. The growth models generated by Romer and Lucas, which are based on increasing returns on physical capital, states the chances of such income divergence. Even the trade models by Krugman states that income divergence may arise due to the differences in the industrial structures. If the industries equipped with high technology and high wages are subjected to external economy then the trade transactions ...Download file to see next pagesRead More
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