Overview of Global Development Patterns

Introduction

Economic growth deals with finding answers to three most important questions, and these are: (i) what explains income distribution patterns, (ii) how to achieve higher levels of incomes and wealth, and (iii) how to sustain high rates of growth of income and welfare. This chapter sets the scene for answering these questions. As is the usual in textbooks on economic growth, initial discussions surround the convergence debate. We make a brief summary of income and growth convergence in this chapter. The conclusions point to few stylized trends. First, international data show that countries’ purchasing power parity (PPP) adjusted (or unadjusted) per capita incomes vary significantly. Second, and a more important finding is that incomes have divergence overtime – there is greater income inequality amongst nations today than there were in the 1960s. Third, while some middle income countries have remained poor, others in this group (now called the newly industrialized economics) have joined the ranks of developed ones. Openness to trade, investment in capital goods and in research and development (R&D) to some extent, financial sector development and credible policies have been suggested to be the drivers of growth in most of these economies. However, country specific growth factors are diverse and worth exploring.

Conversely, some countries which have had good growth prospects in the 1980s have also taken a nosedive largely because of unsustainable use of resources and lack of credible institutions. These are known as growth disaster economies and are exampled in the Latin Americas and South African states. It is also becoming evident that economies with large populations like India and China have seen a turn-around in their fortunes especially after opening-up for international trade. These countries were amongst the poorest in the 1960s, but their rapid rates of growth should push them soon into the ranks of middle income countries. If income distribution within India and China were not skewed, one could have imagined the changes in living conditions that this would have brought to millions of people in these two countries. Therefore, while it is stylized that world distribution of countries may vary; the position of countries can change as their growth trajectory changes. Therefore, the best answer to a country’s many socio-economic plights is sustained rates of growth – this point is heavily emphasized in the text. For matured readers, this amounts to sustaining long-term human development agenda.

Some readers may begin to feel that the emphasis in this book is on growth alone, as if economic development is unimportant. This is not so. It must be understood that even though economic growth is not an end in itself, it empowers societies to achieve other social objectives, sparing populations from poverty and drudgery. Economic growth leads to the creation of welfare enhancing outputs and generates resources to support health care, education, eradicate poverty and other goals of the United Nation’s that the world has committed itself to achieve by 2015¹. Far and large, these are not easy to attain (and maintain) because currently, progress towards achieving them remains slow in most of the harshly affected economies. They require a huge amount of income sacrifice which is hard to come by if the (developed) world’s incomes stopped growing. In short, sustainable rates of growth is a necessary condition for broader human development because it can enlarge the scope of individuals to become productive and creative - the lack of which can potentially undermine human survival and welfare, the Commission on Growth and Development (2008).