Notes for Lecture 4: On Closing the Per Capita Income Gap
Between Developing and Industrial Countries
[October 2, 2007]
economic growth, per capita GDP and per capita GDP growth, the
development [prosperity] gap, the concept of convergence,
compound interest and the
Rule of 72, the four ‘Mission Impossible” scenarios by Thirlwall, the Larry Summer’s
Challenge, obstacles to economic growth, goal of poverty reduction and the Human
Development Index, the story of William Lewis in the Power of Productivity.
This lecture considers the possibilities of, and the prospects for, convergence by the low and
middle income countries, taken together, towards the real GDP per capita levels of the middle
and high industrial countries.
Development/Prosperity Gap [Standard of Living Gap]
The development gap refers to the disparities between the levels of GDP per capita [in U.S.
dollars] for the developing countries versus the industrial countries.
This comparative standard
of living measurement may be based on conversions taken via the average foreign exchange rate
method or through the purchasing-power-parity methodology as discussed in an earlier lecture.
The real per capita incomes for the largest countries [on the basis of population] in the world
were presented during the lecture.
This list showed that Bangladesh and Nigeria, both countries
with a population in excess of 100 million, had real per capita incomes of the order of $250 U.S.
in 1995 dollars; India, with a population of nearly one billion, a per capita income level of $340
U. S. and the United States, with a population of 273 million, a per capita income of $27,000.
The Three Goals of Growth Including Economic Convergence
As a first perspective, a country’s increase in economic growth i.e., increases in real GDP, is
usually listed as the most important economic goal for most countries, including the developing
countries as explained in
As a second and more important perspective, a country’s increase in its economic standard of
living is considered more important i.e., an increases in the rate of real per capita GDP for the
However, in the long run, the developing countries wish to approach the economic standards of
living in the industrial countries.
This is called convergence and involves reducing the real per
between the developing countries and the industrial countries.