Answer to Question #118661 in Macroeconomics for Karan Bhanot

Question

Which are the reasons why developing economies and developed economies are converging more? Explain

Answer 1

 The term convergence is a hypothesis in economics that believes that there will come a time  when developing countries will grow at a faster rate than the developed countries in terms of high levels of growth domestic product (GDP) per capita.

There are various reasons behind the convergence of developed and developing countries some of which include;

1)     The higher proportion of income invested by developing countries for instance 27.0 percent of GDP over the past decade compared with 20.5 percent in developed economies. Investment increase the productivity of labor by giving it more capital to work which results to more output being produced.

2)     The developing nations only need to replicate the development process that was started by the developed nations .This development process is in terms of developing good transport system for instance the major problem in developing countries in road transport is congestion , if only the developing nations improves this they will be in a better position. 

3)     Technological upgrading in developing countries. If the developing nations improves their technology systems they will be in a better position. For instance most developing countries have not been able to fully implement the idea of online marketing and online banking. If they implement this fully they will be improving the marketing sector.

4)     Use of the available resources. In most of the developing countries there are very many resources which are unexploited. If these developing countries utilizes these resources to the optimum they will in a better position than they were before. They will set up new industries which will create employment to its people. Most of the developed countries look for the raw material for their industries from the developing countries.

5)      Innovations. When the developing nations start to look for new innovations as the developed countries have been doing they will be in a better position to accelerate convergence. Innovations can be achieved through setting up various research institutes, improving the education systems example schools and encouraging people to start innovating.