Home Globalization - 1. Convergence and divergence

Effects of globalization

Convergence and divergence

Globalization should in principle help equalize international incomes and reduce the need for people to emigrate in search of higher wages.

in the past there have indeed been major periods of international convergence between the richer countries. One was in the period 1870-1913 when wages in Europe moved steadily closer to those in the United States and Australia. Another was in the 1960s when Europe again caught up with the United States and wages also converged between European countries. In Europe this convergence certainly reduced migration .

In most of the rest of the world, however, the picture has been very different – as the richer countries pulled further and further ahead of the developing countries. A World Bank study estimated that in 1879 the the per capita income of the richest country (the United States) was nine times greater than that of the poorest countries like Ethiopia. But by 1960 US income was 50 times greater. The United Nations Development Programme has arrived at similar conclusions. Even in the brief period 1988-93, global inequality continued to increase .

This divergence is very different from that predicted by classical economic theory, which says that the movement of capital, goods, and people across national borders should eventually bring prices and wages everywhere into line. The poorer countries should then be able to send goods instead of people. Clearly this is not happening. Globalization is taking place in a very distorted fashion. As a result, neither people, nor goods, nor capital are flowing in the free and beneficial fashion that this simple model predicts.

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Rio de Janeiro

Transational enterprises have been flattening global cultures.
Photo: Ry