Marginal Product of Capital

The growth rate of the capital stock depends on the marginal product of capital. Country A has little capital, so the marginal product of capital is large, and the capital stock will grow rapidly. Country B has more capital, so the capital stock grows more slowly. Country C has so much capital that the capital stock decreases. “Convergence through the Accumulation of Capital” suggests an even stronger conclusion: all three economies will ultimately end up at the same capital stock and the same level of output—complete convergence. This conclusion is half right. If the three economies were identical except for their capital stocks and if there were no growth in human capital and technology, they would indeed converge to exactly the same level of capital stock and output. In Section 6.4 “Balanced Growth”, we look at this argument more carefully. First, though, we examine the evidence on convergence. Convergence or Divergence? Two Contrasting Pictures Convergence is a very pretty theory but is it borne out by the evidence? Figure 6.9 “Some Evidence of Convergence” shows the growth experience of several countries in the second half of the 20th century. These countries are all members of the Organisation for Economic Co- operation and Development (OECD) and are, relatively speaking, rich. [2]Figure 6.9 “Some Evidence of Convergence” shows real GDP per person in these countriesrelative to the United States (the United States itself is the horizontal line near the top of the figure.) Figure 6.9 “Some Evidence of Convergence” does show some evidence of convergence. Countries with higher levels of real GDP person in 1950 tended to grow more slowly than countries with lower levels of real GDP per person. Poorer countries in this group tended to catch up with richer countries. Figure 6.9 Some Evidence of Convergence

The growth experience of 16 relatively developed countries, measured as real GDP per person relative to the level in the United States, shows considerable evidence of convergence.

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