Club Convergence

Although the concept of ‘club convergence’ emerged from empirical evidence, its theoretical underpinnings can be found in neoclassical and endogenous growth models, outlined in Chaps. 2 and 3. Indeed, a prediction of several Endogenous Growth models, such as the ‘Technological Diffusion-Gap’ model, is that economies do not converge towards a common equilibrium. ‘New Economic Geography’ implies a polarisation of regions into different ‘clusters’, poor or ‘peripheral’ regions and rich or ‘central-core’ regions, with growing disparities and divergence among clusters. It is the purpose of this chapter to examine the theoretical framework for club convergence. Firstly, the notion of ‘club convergence’, as this has emerged from empirical studies, is introduced in Sect. 4.2. Section 4.3 outlines two theoretical approaches to multiple equilibria and club convergence proposed by Galor (1996) and Azariadis and Drazen (1990), which are, essentially, a reformulation of the neoclassical model. Section 4.4 describes the club convergence pattern within the framework of Endogenous Growth Theory, in which club convergence is attributed to the diffusion of technological innovations from leading economies. This process, however, appears to be exogenous and very little is said about how is determined. Diffusion of technology is not a simple and automatic process. Instead, it requires that lagging economies (countries or regions) should have the appropriate infrastructure or conditions to adopt or absorb the technological innovations. A simple model is developed in Sect. 4.5 in which club convergence is attributed to differences in the absorptive abilities of regions. Finally, Sect. 4.6 provides some conclusions.