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Economically speaking.
http://en.wikipedia.org/wiki/Convergence_(economics)
definition: The idea of convergence in economics (also sometimes known as the catch-up effect) is the hypothesis that poorer economies' per capita incomes will tend to grow at faster rates than richer economies.
That makes perfect sense. The next sentence however...
"As a result, all economies should eventually converge in terms of per capita income."
That is what I have an issue with. The fact that poorer economies have the potential to grow much faster than richer economies doesn't mean they will all 'converge' in terms of per capita income. It just doesn't make sense.
Capitalism is based on consumption (read loosely as greed). Naturally, business move production off-shore (south east Asia) to please shareholders and increase profits. To offload production means getting it done by someone who earns less. That's just the way it is.
Therefore, to say, 'all economies should converge in terms of per capita income' is just wrong.
Unless someone is just trolling on wiki. If so, thanks for wasting ten minutes of my life.
 
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T.O.P.
Hong Kong4685 Posts
Eventually wages in South East Asia will rise so much that it no longer makes sense to manufacture items there. So everyone just moves manufacturing back home.
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But at that point in time, will the country that sent manufacturing off-shore still have the same per capita income?
Don't think so.
Read: They would have less. Otherwise it would stay off-shore.
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Go to an economics class instead of learning about it on wikipedia.
Theory of convergence holds up pretty much.
You are assuming that the country outsourcing isn't finding other ways of improving when wages go up in the low-wage countries.
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The theory of convergence has been proven reliable for East Europe and certain Asian countries (Four Tigers, etc). The general idea is that the off-shoring accelerate their economic development until which point their endemic development took over. Then low cost manufactoring centers shift to lower cost locales. For example, textile has already begun its shift towards Africa instead of Asia recently.
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Whaaaaa? its just relative wages. Manufacturing will "come back" (or rather a new aspect of manufacturing will take off) when wages effectively equalize (i.e. the cost of wages + w/e other costs required to the transport and sell those good back in the developed country). Generally as long as free trade prevails, wages should trend towards equality and thus things should move towards equality. Of course other things can influence the equilibrium and in the real world equilibrium is always a moving number. And things like culture, laws, or physical geography can lead to permanent advantages.
But "Capitalism is based on consumption (read loosely as greed). Naturally, business move production off-shore (south east Asia) to please shareholders and increase profits. To offload production means getting it done by someone who earns less. That's just the way it is" is incorrect. Many times it is worth it (ie profitable) to have production dont be someone earning above average.
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On February 01 2012 20:24 Primadog wrote:
The theory of convergence has been proven reliable for East Europe and certain Asian countries (Four Tigers, etc). The general idea is that the off-shoring accelerate their economic development until which point their endemic development took over. Then low cost manufactoring centers shift to lower cost locales. For example, textile has already begun its shift towards Africa instead of Asia recently.
Exactly. There will always be someone to go to for cheaper labour. Meaning there will never be convergence. No?
Edit: I'm not trying to be stubborn.
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On February 01 2012 20:53 BookTwo wrote:Show nested quote +On February 01 2012 20:24 Primadog wrote:
The theory of convergence has been proven reliable for East Europe and certain Asian countries (Four Tigers, etc). The general idea is that the off-shoring accelerate their economic development until which point their endemic development took over. Then low cost manufactoring centers shift to lower cost locales. For example, textile has already begun its shift towards Africa instead of Asia recently. Exactly. There will always be someone to go to for cheaper labour. Meaning there will never be convergence. No? Edit: I'm not trying to be stubborn.
At one point, no, at one point everyone will have the same rate.
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On February 01 2012 19:57 BookTwo wrote:Economically speaking. http://en.wikipedia.org/wiki/Convergence_(economics)definition: The idea of convergence in economics (also sometimes known as the catch-up effect) is the hypothesis that poorer economies' per capita incomes will tend to grow at faster rates than richer economies. That makes perfect sense. The next sentence however... "As a result, all economies should eventually converge in terms of per capita income." That is what I have an issue with. The fact that poorer economies have the potential to grow much faster than richer economies doesn't mean they will all 'converge' in terms of per capita income. It just doesn't make sense. Capitalism is based on consumption (read loosely as greed). Naturally, business move production off-shore (south east Asia) to please shareholders and increase profits. To offload production means getting it done by someone who earns less. That's just the way it is. Therefore, to say, 'all economies should converge in terms of per capita income' is just wrong. Unless someone is just trolling on wiki. If so, thanks for wasting ten minutes of my life.
So you agree that poorer countries grow faster but you don't see how this makes them equally rich in the long run? I'm confused.
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On February 01 2012 21:14 hypercube wrote:Show nested quote +On February 01 2012 19:57 BookTwo wrote:Economically speaking. http://en.wikipedia.org/wiki/Convergence_(economics)definition: The idea of convergence in economics (also sometimes known as the catch-up effect) is the hypothesis that poorer economies' per capita incomes will tend to grow at faster rates than richer economies. That makes perfect sense. The next sentence however... "As a result, all economies should eventually converge in terms of per capita income." That is what I have an issue with. The fact that poorer economies have the potential to grow much faster than richer economies doesn't mean they will all 'converge' in terms of per capita income. It just doesn't make sense. Capitalism is based on consumption (read loosely as greed). Naturally, business move production off-shore (south east Asia) to please shareholders and increase profits. To offload production means getting it done by someone who earns less. That's just the way it is. Therefore, to say, 'all economies should converge in terms of per capita income' is just wrong. Unless someone is just trolling on wiki. If so, thanks for wasting ten minutes of my life. So you agree that poorer countries grow faster but you don't see how this makes them equally rich in the long run? I'm confused.
He doesn't get why they can catch-up without affecting the outsourcing country
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Therefore, to say, 'all economies should converge in terms of per capita income' is just wrong.
This is plain wrong. You need to say: all other factors equal, all economies should converge in terms of per capita income.
That's entirely correct, and to be frank your criticism is actually incoherent. Explain yourself more fully.
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On February 01 2012 21:23 Grovbolle wrote:
He doesn't get why they can catch-up without affecting the outsourcing country
It does affect the outsourcing country. However, how would lead to continuing inequality?
Country A originally outsources manufacturiung to Country B due to costs, then centers it's economy more on services and value added sectors. Country B becomes richer, making manufacturing less and less attractive and services/value-added jobs more attractive. Both Country A and B diversify their economies because neither has significant comparative advantage in either sector, at the same income.
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On February 01 2012 21:32 TheKwas wrote:Show nested quote +On February 01 2012 21:23 Grovbolle wrote:
He doesn't get why they can catch-up without affecting the outsourcing country It does affect the outsourcing country. However, how would lead to continuing inequality? Country A originally outsources manufacturiung to Country B due to costs, then centers it's economy more on services and value added sectors. Country B becomes richer, making manufacturing less and less attractive and services/value-added jobs more attractive. Both Country A and B diversify their economies because neither has significant comparative advantage in either sector, at the same income.
I know, I am not the OP
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The rich get richer, the poor poorer, that's what I learned from life, so no, I don't believe in convergence.
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IMO the country that's more technologically advanced will always be better off economically simply due to the fact that less resource is required to produce goods/services of the same quality (or the same resources can be used to produce higher quality products/services). This plus a bunch of other factors constitutes the leading economy of the US historically.
The Wiki page from the OP is a vast simplification of very complex dynamics on the economy, it's too theoretical to be useful.
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IMO the country that's more technologically advanced will always be better off economically simply due to the fact that less resource is required to produce goods/services of the same quality (or the same resources can be used to produce higher quality products/services).
Technology converges too.
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On February 01 2012 23:14 Incze wrote:
The rich get richer, the poor poorer, that's what I learned from life, so no, I don't believe in convergence.
This is true for individuals, not for countries! this means all countries will soon be equally full of really poor people with some rich people.
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sounds like they dont take into account diminishing returns, as an economy grows its starts to grow slower and slower whilst the superior economy is also still growing, Sure theoretically EVENTUALLY economies will converge, it says nothing of the timeframe
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On February 02 2012 01:28 TheKwas wrote:Show nested quote +IMO the country that's more technologically advanced will always be better off economically simply due to the fact that less resource is required to produce goods/services of the same quality (or the same resources can be used to produce higher quality products/services). Technology converges too.
I don't think you can use convergence for tech. There can be a huge difference in economic conditions with just a tiny advancement in technology. If one country manages to stay just a small step ahead of the rest it will create a pretty big ripple effect. We see the rest of the world playing catch up to the US and Japan since WWII, and none has succeeded so far.
Bottom line: better tech --> higher profit --> more money for R&D (this attracts talents away from less developed regions in the world, think of why people want to come to the western world for higher education) --> better tech. Technologies can be copied, but not innovated when you don't have the same amount of resources as the leading economies.
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On February 02 2012 02:41 Rice wrote:
sounds like they dont take into account diminishing returns, as an economy grows its starts to grow slower and slower whilst the superior economy is also still growing, Sure theoretically EVENTUALLY economies will converge, it says nothing of the timeframe
This is another good point. If your time horizon approaches infinity, perhaps they will all converge.
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EPT
