Team Purple is asked to investigate whether the per capita income of a developing country should converge toward that of developed countries over time. Team Purple reviews various determinants of per capital incomes: saving rate, population growth rate, the shape of production function, and the externalities associated with human capital. After a debate among team members, Team Purple concludes that the externalities associated with human capital is the most important determinant in predicting the occurrence of convergence.
Which of the following convergence concepts is most compatible with Team Purple’s conclusion?
- Non-convergence
- Absolute convergence
- Conditional convergence
Please explain why it is not conditonal convergence
In conditional convergence, we have 3 conditions i.e., same saving rate, same production function and same population growth rate but the question does not focus on that, it is the externalities associated with human capital which is the most important determinant in predicting the occurrence of convergence so it can’t be conditional convergence.
Next we have club convergence, in which we take same institutional reforms.
Last we have absolute convergence, in which no specific conditions or institutional reforms are there.
Hope this helps!
Is answer Option A?
A is the answer
yes