I wouldn't *really* call Lithuania or Latvia "high-income." There has to be some sort of artifact or outlier that pushes their statistics higher. They have an absolutely atrocious emigration rate, Albania and Bosnia tier.
Plus, why would some of them not be able to converge ever? There's only so much growth that can be stuffed in Europe, for example. In some cases, it might be hilariously slow, but trickle down economics do work on a geopolitical scale
"In some cases, it might be hilariously slow, but trickle down economics do work on a geopolitical scale"
Most of LatAm stopped converging with the developed West forty years ago; I expect the same to happen to the rest of the world at some point over the next century.
This was a fascinating article, but I have a few quibbles/observations.
1. India was *extremely* poor 40 years ago, whereas countries like Morocco were far richer, comparatively speaking of course. According to World Bank data (using constant 2010 dollars), India was three times poorer than Morocco in 1980. Today it has become about half as rich (again, using constant 2010 dollars, not PPP, for better historical comparisons). Morocco has not stood still, so India has indeed converged and will likely continue to converge.
India's growth trajectory should be compared to countries as poor as it was in 1960 (as far back as World Bank data goes), where it has been in the top 10% for sure, only beaten by notables such as South Korea or China. Nevertheless, I agree with you that India is unlikely to become as rich as Taiwan or even China. I think a more likely scenario would be Hindu Brazil - but with better food, lower crime and funkier music. Not too terrible.
2. While Eastern Europe has indeed been the quiet success story, I am not sure I buy your demographic argument. Indeed, massive emigration and rock-bottom TFR ought to produce very slow growth. Yet EE growth has been very TFP-intensive. This shows that demographics are not as important for growth as the neoliberal model would predict ("demographic dividend"), but rather that the quality of human capital - instead of the quantitiy - is the decisive factor. Among other things such as reasonably low corruption etc.
There's a good paper on the non-issue of aging on economic growth. It's available for free here:
3. This brings me to your claim that convergence will be "spent" by 2040. This is an arbitrary claim that I find little support for, once we accept that aging isn't the major constraint here. Furthermore, the so-called "Tiger economies" were outliers. Most rich countries today grew at a relatively torpid pace for many decades, indeed centuries. The Netherlands and the UK averaged about 2% per capita growth over 200 years. It took them a very long time to move from upper-middle income to high-income (using Maddison's database).
Jesus Felipe has written about this claim, in conjuction with debunking the useless "middle-income trap" myth. His full paper deserves to be read, for he marshals a large historical database and makes a powerful case:
4. I am in general a skeptic of PPP in these discussions. PPP has its uses to measure poverty, but the finer things in life are often dictated by your purchasing power in nominal terms: how much hard currency or equivalent you can afford to spend. For an ambitious country, it makes sense to use nominal exchange rates instead of PPP. China certainly does whenever I read their reports. Sure, life in Mexico might be better than nominal income per head data might indicate, but do Mexicans want to live like that forever? As nominal incomes grow, PPP narrows as the price differential narrows.
I would also add that the World Bank's definition of "high-income" is laughably low. It got criticised already in the late 1980s when it got unveiled for putting the bar very low. At that point, the US had about $28K per head and the bar was set at barely $6K. Even today, the US is at $67K per head and the "high-income" threshold is at a mere $12K.
Using a more realistic level of around $25-30K per head, many EE smaller countries are still not high-income but on the cusp. Malaysia still has a very long way to go.
5. East Asian underperformance is indeed a fact, but it isn't as bad as many may think. Nominal wages in South Korea or Japan are now at Northern Italian levels. Sure, below the richest Northern European countries+US+AU but still decent. I think while standardised test scores can give some indication of the human capital of the country, it fails to measure creativitiy, which is very important for innovation (and thus productivity growth at the frontier, since you can't learn from anyone else once you are very rich; you must innovate yourself). Perhaps these countries do worse on this? It's not a subject we test well, or know much about.
"Jesus Felipe has written about this claim, in conjuction with debunking the useless "middle-income trap" myth. His full paper deserves to be read, for he marshals a large historical database and makes a powerful case:"
The paper debunks the idea of a middle-income trap in absolute terms, however, I was (and so are most people using that concept) thinking of relative terms. Argentina still experienced economic growth between 1960 and 2021, but it wasn't converging with the advanced countries; it was diverging from them. An absolute threshold for the division between low-income and lower-middle income countries certainly makes sense (Bangladesh today is much more like Finland in 1940 than Bangladesh in 1960), I don't know if one between upper-income and upper-middle-income countries makes sense.
"This shows that demographics are not as important for growth as the neoliberal model would predict ("demographic dividend"), but rather that the quality of human capital - instead of the quantitiy - is the decisive factor."
Quite possibly true. We'll see the ultimate results in a few decades.
"This brings me to your claim that convergence will be "spent" by 2040."
It won't be spent in Africa, but it will almost certainly be spent at the upper-middle-income country level (where I say we should see the "tiger economies" of the future). We won't be seeing countries in the upper-middle-income range with 7% or even 5% growth rates for any substantial period of time after 2040.
I agree the World Bank's high income bar is slightly too low. I would consider a country like Portugal as high-income; Greece might still be upper-middle-income. I would not consider Uruguay, Croatia, Chile, and Latvia as high-income.
I wonder what Romanians and Greeks (or Uruguayans and Russians, Australians and Taiwanese) think about PPP and living standards.
" I was (and so are most people using that concept) thinking of relative terms."
Let's say country X would perpetually be stuck at 40% of US income level. Today it would be richer than the US was during most of the 1960s, not exactly a period known for destitution in America. Going forward, it would only become richer. Yes, it would never catch up but can we seriously claim it is not prosperous going forward? That becomes implausible, if not impossible, to argue.
There's a deeper debate as to whether relative or absolute terms are best - I think both have their merits - but ruling out absolute thresholds is a mistake, I think. The World Bank's various poverty thresholds are set at absolute levels - only updated to allow for inflationary increases. There's no inherent reason why we should not set higher income thresholds for the global middle-class. Indeed, many have done so:
Just a short addition on the "middle-income trap" myth and the very weak empirical evidence for it. It is worth re-emphasising that the "Tiger economies" were extreme outliers, even compared to today's Western countries. If we were to assume that your prognosis of >5% growth being ruled out post-2040s, that still doesn't invalidate the idea that plenty of countries could still become rich. As noted, the Netherlands took well over a 100 years to move from UMI to HI.
I think the experience of these countries have warped the common understanding of development economics, and whenever others invariably fail to live up to similar sky-high growth rates, they are written off as being in some kind of non-existent "trap". In many ways, our understanding of inflation and interest rates was also very damaged by the outlier period of the late 70s and early 80s.
P.P.S.
Argentina may have grown, but in nominal terms, they didn't do particularly well. Same can be said for Turkey, which grew very rapidly in the 2010s yet their currency lost ~80% of its nominal value against the US dollar. This is partly why I am a PPP-skeptic, because going by PPP, Turkey looks like it had a fantastic 2010s, whereas the reality is far bleaker.
I wouldn't *really* call Lithuania or Latvia "high-income." There has to be some sort of artifact or outlier that pushes their statistics higher. They have an absolutely atrocious emigration rate, Albania and Bosnia tier.
Plus, why would some of them not be able to converge ever? There's only so much growth that can be stuffed in Europe, for example. In some cases, it might be hilariously slow, but trickle down economics do work on a geopolitical scale
Eastern Europe's low price level pushes them up.
"In some cases, it might be hilariously slow, but trickle down economics do work on a geopolitical scale"
Most of LatAm stopped converging with the developed West forty years ago; I expect the same to happen to the rest of the world at some point over the next century.
This is due to human capital.
This was a fascinating article, but I have a few quibbles/observations.
1. India was *extremely* poor 40 years ago, whereas countries like Morocco were far richer, comparatively speaking of course. According to World Bank data (using constant 2010 dollars), India was three times poorer than Morocco in 1980. Today it has become about half as rich (again, using constant 2010 dollars, not PPP, for better historical comparisons). Morocco has not stood still, so India has indeed converged and will likely continue to converge.
India's growth trajectory should be compared to countries as poor as it was in 1960 (as far back as World Bank data goes), where it has been in the top 10% for sure, only beaten by notables such as South Korea or China. Nevertheless, I agree with you that India is unlikely to become as rich as Taiwan or even China. I think a more likely scenario would be Hindu Brazil - but with better food, lower crime and funkier music. Not too terrible.
2. While Eastern Europe has indeed been the quiet success story, I am not sure I buy your demographic argument. Indeed, massive emigration and rock-bottom TFR ought to produce very slow growth. Yet EE growth has been very TFP-intensive. This shows that demographics are not as important for growth as the neoliberal model would predict ("demographic dividend"), but rather that the quality of human capital - instead of the quantitiy - is the decisive factor. Among other things such as reasonably low corruption etc.
There's a good paper on the non-issue of aging on economic growth. It's available for free here:
https://www.aeaweb.org/articles?id=10.1257/aer.p20171101
3. This brings me to your claim that convergence will be "spent" by 2040. This is an arbitrary claim that I find little support for, once we accept that aging isn't the major constraint here. Furthermore, the so-called "Tiger economies" were outliers. Most rich countries today grew at a relatively torpid pace for many decades, indeed centuries. The Netherlands and the UK averaged about 2% per capita growth over 200 years. It took them a very long time to move from upper-middle income to high-income (using Maddison's database).
Jesus Felipe has written about this claim, in conjuction with debunking the useless "middle-income trap" myth. His full paper deserves to be read, for he marshals a large historical database and makes a powerful case:
https://www.adb.org/sites/default/files/publication/149903/ewp-421.pdf
4. I am in general a skeptic of PPP in these discussions. PPP has its uses to measure poverty, but the finer things in life are often dictated by your purchasing power in nominal terms: how much hard currency or equivalent you can afford to spend. For an ambitious country, it makes sense to use nominal exchange rates instead of PPP. China certainly does whenever I read their reports. Sure, life in Mexico might be better than nominal income per head data might indicate, but do Mexicans want to live like that forever? As nominal incomes grow, PPP narrows as the price differential narrows.
I would also add that the World Bank's definition of "high-income" is laughably low. It got criticised already in the late 1980s when it got unveiled for putting the bar very low. At that point, the US had about $28K per head and the bar was set at barely $6K. Even today, the US is at $67K per head and the "high-income" threshold is at a mere $12K.
Using a more realistic level of around $25-30K per head, many EE smaller countries are still not high-income but on the cusp. Malaysia still has a very long way to go.
5. East Asian underperformance is indeed a fact, but it isn't as bad as many may think. Nominal wages in South Korea or Japan are now at Northern Italian levels. Sure, below the richest Northern European countries+US+AU but still decent. I think while standardised test scores can give some indication of the human capital of the country, it fails to measure creativitiy, which is very important for innovation (and thus productivity growth at the frontier, since you can't learn from anyone else once you are very rich; you must innovate yourself). Perhaps these countries do worse on this? It's not a subject we test well, or know much about.
"Jesus Felipe has written about this claim, in conjuction with debunking the useless "middle-income trap" myth. His full paper deserves to be read, for he marshals a large historical database and makes a powerful case:"
The paper debunks the idea of a middle-income trap in absolute terms, however, I was (and so are most people using that concept) thinking of relative terms. Argentina still experienced economic growth between 1960 and 2021, but it wasn't converging with the advanced countries; it was diverging from them. An absolute threshold for the division between low-income and lower-middle income countries certainly makes sense (Bangladesh today is much more like Finland in 1940 than Bangladesh in 1960), I don't know if one between upper-income and upper-middle-income countries makes sense.
"This shows that demographics are not as important for growth as the neoliberal model would predict ("demographic dividend"), but rather that the quality of human capital - instead of the quantitiy - is the decisive factor."
Quite possibly true. We'll see the ultimate results in a few decades.
"This brings me to your claim that convergence will be "spent" by 2040."
It won't be spent in Africa, but it will almost certainly be spent at the upper-middle-income country level (where I say we should see the "tiger economies" of the future). We won't be seeing countries in the upper-middle-income range with 7% or even 5% growth rates for any substantial period of time after 2040.
I agree the World Bank's high income bar is slightly too low. I would consider a country like Portugal as high-income; Greece might still be upper-middle-income. I would not consider Uruguay, Croatia, Chile, and Latvia as high-income.
I wonder what Romanians and Greeks (or Uruguayans and Russians, Australians and Taiwanese) think about PPP and living standards.
" I was (and so are most people using that concept) thinking of relative terms."
Let's say country X would perpetually be stuck at 40% of US income level. Today it would be richer than the US was during most of the 1960s, not exactly a period known for destitution in America. Going forward, it would only become richer. Yes, it would never catch up but can we seriously claim it is not prosperous going forward? That becomes implausible, if not impossible, to argue.
There's a deeper debate as to whether relative or absolute terms are best - I think both have their merits - but ruling out absolute thresholds is a mistake, I think. The World Bank's various poverty thresholds are set at absolute levels - only updated to allow for inflationary increases. There's no inherent reason why we should not set higher income thresholds for the global middle-class. Indeed, many have done so:
https://twitter.com/maxcroser/status/1394296742871437312
Just a short addition on the "middle-income trap" myth and the very weak empirical evidence for it. It is worth re-emphasising that the "Tiger economies" were extreme outliers, even compared to today's Western countries. If we were to assume that your prognosis of >5% growth being ruled out post-2040s, that still doesn't invalidate the idea that plenty of countries could still become rich. As noted, the Netherlands took well over a 100 years to move from UMI to HI.
I think the experience of these countries have warped the common understanding of development economics, and whenever others invariably fail to live up to similar sky-high growth rates, they are written off as being in some kind of non-existent "trap". In many ways, our understanding of inflation and interest rates was also very damaged by the outlier period of the late 70s and early 80s.
P.P.S.
Argentina may have grown, but in nominal terms, they didn't do particularly well. Same can be said for Turkey, which grew very rapidly in the 2010s yet their currency lost ~80% of its nominal value against the US dollar. This is partly why I am a PPP-skeptic, because going by PPP, Turkey looks like it had a fantastic 2010s, whereas the reality is far bleaker.