Answer to Question #118836 in Macroeconomics for Karan Bhanot

Question

reason why developing economies and developed economies are converging on the basis gdp ? Explain within 100 words

Answer 1

Convergence is when developing countries with low levels of GDP per capita catch up with developed countries with high GDP per capita. Convergence can occur when both developing and developed countries increase investment in physical and human capital with the objective of increasing GDP. Developed countries are likely to have diminishing returns to their investments and must continually invent new technologies; this allows lower-income economies to have a chance for convergent growth. Investment in physical and human capital on countries may result in huge gains as new skills or equipment is combined with the labor force leading to convergence with developed economies.