Unconditional Convergence and a Theory of Economic Miracles

Economist-blogger Dani Rodrik points to a paper by one of his students which concludes that:

"Rapidly growing countries are those that are, counterintuitively, farther away from the productivity frontier of the goods that they export. Diversification of production acts like a convergence machine: it enables countries to get into the lower rungs of taller ladders."

The above seems to support what Nobel Prize winner Robert Lucas wrote* when he did a comparison between the diverging growth trajectory of the Philippines and South Korea:

"Consider two small economies facing the same world prices and similarly endowed, like Korea and the Philippines in 1960. Suppose that Korea somehow shifts its workforce onto the production of goods not formerly produced there, and continues to do so, while the Philippines continues to produce its traditional goods. Then according to learning spillover theory, Korean production will grow more rapidly. But in 1960, Korean and Philippine incomes were about the same, so the mix of goods their consumers demanded was about the same. For this scenario to be possible, Korea needed to open up a large difference betweeen the mix of goods produced and the mix consumed, a difference that could widen over time.Thus a large volume of trade is essential to a learning-based growth episode"

Will have to study further and, if i can, blog more about this later, but in the meantime, this entry serves as a placeholder.

*Source: Making A Miracle from Lectures on Economic Growth, Robert E. Lucas Jr, 2002.