Issues of Convergence: Some Evidences of SAARC Countries

Issues of Convergence: Some Evidences of SAARC Countries

Maniklal Adhikary (The University of Burdwan, India) and Melisha Khatun (The University of Burdwan, India)
DOI: 10.4018/978-1-5225-0215-9.ch006
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Abstract

There is no point to disagree that inequality in recent time has come up as a growing social predicament in the world. This chapter endeavors to look into the issue of convergence in terms of per capita gross domestic product, infant mortality rate, life expectancy at birth and Human Development Index among eight member countries of South Asian Association of Regional Cooperation (SAARC) during the time frame 1990-2013. There has been an evidence of strong absolute beta divergence in terms of per capita gross domestic product and infant mortality rate. But the beta convergence in terms of life expectancy at birth and HDI has also been empirically evidenced. Strong evidence of conditional beta divergence conditioning on infant mortality rate exists in terms of PCGDP only for the time period 1990-1995. Sigma divergence implying dispersion among the countries in terms of PCGDP and IMR has risen over time. But sigma convergence has been found to exist for LEB and HDI.
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Introduction

The issue of convergence appears to be significant in the context of social and economic development. It refers to the catch up effect which represents the phenomenon that poorer countries grow faster in terms of per capita income than the richer countries. The study of convergence has attracted the attention of social scientists as well as policy makers. Although in a group of homogenous countries the poor countries grow faster in terms of per capita macroeconomic variables (Solow, 1956), the study has also produced some new stylized facts such as ‘persistence’ and ‘bi-modality.’ The idea of ‘persistence’ implies that most of the countries continue to remain in the same position (or range) of the distribution of the variable concerned. Further, “whatever mobility (within the distribution) exists, it works to ‘thin out the middle,’ and ‘pile up of probability mass at the two tails.’ According to Quite result of bi-modality of the distribution do not change and this makes the bi-modal property linked with the situation of ‘poverty piling up’ (Quah, 1996). The growth theory is now called upon to explain these facts about cross-country growth regularities (Naurul, 2003).

It has been argued that poorer countries grow at a faster rate than the richer countries because in rich countries diminishing returns to factor operate. But the poor countries have enough opportunity to modernize the production process. It also depends on the absorbing power of the poor countries for adopting new technology. This technology is very much expensive also for poor countries.

One of the prevailing myths of globalization is that the increased trade has been the catalyst for the new era of convergence. Expanded trade is helpful to narrow the gap between the rich and poor countries, because the gains from trade of the developing countries owing to new technologies and new markets. But successful integration amongst the countries is the exception rather than the rule and trade is a driver of global inequality as well as prosperity. For the majority of countries the globalization story is one of divergence.

For most of the past 40 years human capabilities have been gradually converging. From a low base, developing countries as a group have been catching up with rich countries in such areas as life expectancy, infant mortality and literacy. High rates of investment in human capital are helpful to enhance the growth of an economy and reduce regional inequality. A better level of human development provides incentives to people to invest in productive activities and in the development of new goods and production technologies which enhances the growth rate. On the contrary, the worrying aspect of human development is that the overall rate of convergence is decelerating and for a large group of countries divergence is becoming the order of the day. In a world of already extreme inequalities, gaps in human development between rich and poor countries are in some cases widening and in others narrowing very slowly. The process is uneven, with large variations across regions and countries.

Inequality in terms of income, wealth, and asset hinders the long run growth of an economy. The study of convergence emphasized on the technological differences across regions. Thus, it has induced the policy makers to frame suitable strategy of development in order to wipe out the cross country differences. This provides a new information base which helps in understanding the interaction among different regions along with other dimensions like spread of institutions, investment etc. At the international level, the critical strategy for reducing inequality needs to be designed in such a manner that it should ensure amenities for all and universal access to basic needs such as food, housing, health services, education and social protection.

Key Terms in this Chapter

Per Capita Gross Domestic Product: Per capita Gross Domestic Product is used as a measure of the wealth of the population of a nation. Purchasing Power Parity (PPP) GDP is gross domestic product converted to international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GDP as the U.S. dollar has in the United States.

Beta-Convergence: According to Barro and Sala-i-Martin (1995) , when partial correlation between growth in income over time and its initial level is negative, there is “beta convergence”. Beta-convergence refers to a process in which poor regions grow faster than rich ones and therefore catch on them. When all economies are assumed to converge towards the same steady state (in terms of GDP per head and growth rate), Beta-convergence is said to be Absolute. However, the steady-state may depend on specific features of each economy. These factors can vary from one economy to the other even in the long run. Beta-convergence is then said to be conditional.

Human Development Index (HDI): The Human Development Index (HDI) is a composite index of outcome indicators in three dimensions: 1) A long and healthy life measured by life expectancy at birth; 2) The acquisition of education and knowledge measured by a combination of adult literacy (two thirds weight) and combined primary, secondary and tertiary enrolment (one third weight) ratios; 3) The standard of living and command over resources estimated by real GDP per capita (in terms of dollar as per purchasing power parity).

Governance: By the end of 20 th century the term government was being applied to economics. Several institutions such as IMF, World Bank etc. have defined the term governance in their own self-styled manner. According to Kaufmann, Kraay and Zoido-Lobaton (1999) AU34: The citation "Kaufmann, Kraay and Zoido-Lobaton (1999)" matches multiple references. Please add letters (e.g. "Smith 2000a"), or additional authors to the citation, to uniquely match references and citations. the fundamental aspects of governance may be considered as follows: 1) Control of Corruption; 2) Rule of Law; 3) Government Effectiveness; 4) The other dimensions of this issue include the following terms: Voice and Accountability, Political Instability, and Regulatory Burden.

Life Expectancy at Birth: Life expectancy at birth (LEB) indicates the number of years a newborn infant would live if prevailing patterns of mortality at the time of its birth were to stay the same throughout its life.

Infant Mortality Rate: Infant mortality is measured as the number of deaths before one year of age, for every 1,000 live births.

Sigma-Convergence: “Sigma convergence” implies dispersion of real per capita income across a group of economies fall over time.

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