Global Divergence

I show that the evolution of cross-country incomes is characterized by global divergence. To do this, the sample of non-mainly-petroleum-exporting countries having market economies during the period 1960-1997 is divided into five clusters of countries by a regression clustering algorithm according to the levels and rates of change of income and life expectancy. The five clusters correspond to advanced countries, especially fast growing countries, and three tiers of less developed countries with qualitatively different development paths. I show that the following properties hold for these clusters. 1) Growth rates across groups of countries are globally divergent; some successive groups converge while most diverge. 2) Income inequality between these groups of countries has increased while income inequality within the groups has remained almost unchanged. 3) The five groups of countries exhibit beta and sigma income divergence between groups and convergence within groups. Besides, the implied steady state growth rates across groups of countries are globally divergent, the five-club convergence model is much more significant than the one-club model, and the distributions of country-specific convergence regression coefficients are significantly different across groups of countries. The convergence found within groups is consistent with the relative convergence (to steady state trajectories) found in the literature. However, relative convergence only means that there are a series of perhaps distinct, local equilibrium processes going on. Indeed, these may themselves be due to economic forces that prevent global convergence. The empirical facts are consistent only with theories of economic growth explaining divergence and proposing multiple steady states or other explanations for prolonged transitions Such models usually reflect advantages of the rich and disadvantages of the poor. A descriptive study of the five groups of countries suggests, as a stylized fact, that there are three large-scale steady states or convergence clubs, semi-stagnation (low income and life expectancy), semi-development (middle income and high life expectancy) and development (high income and life expectancy), according to whether countries have overcome barriers to human development and to technological innovation. Three of the five groups lie in each of these steady states and the other two transit between them.