Divergence, Big Time

October 1995
The basic fact of modern economic history is massive absolute divergence in the distribution of incomes across countries. This paper shows that even without actual historical data on incomes in the now poor countries we can reasonably estimate that the ratio of the incomes of the richest to the poorest countries increased at least sixfold between 1870 and today.
Recently, much attention has been paid in the literature on economic growth to the phenomenon of conditional convergence, the tendency of economies with lower-level incomes to grow faster, conditional on their rate of factor accumulation.
Pritchett documents that, regardless of conditional convergence, perhaps the basic fact of modern economic history is massive absolute divergence in the distribution of incomes across countries.
Discussions of long-run convergence or divergence have been hindered by the lack of reliable historical estimates of per capita income for poor countries. Pritchett shows that to draw reasonable inferences about whether incomes have converged or diverged does not require historical estimates of per capita income as a plausible lower limit for historical per capita incomes combined with estimates of current income in poor countries places a binding constraint on their historical growth rates.
Pritchett estimates that between 1870 and 1985 the ratio of incomes in the richest and poorest countries increased sixfold, the standard deviation of (natural log) per capita incomes increased by between 60 and 100 percent, and the average income gap between the richest and poorest countries grew almost ninefold (from $1,500 to over $12,000).
This paper --- a product of the Office of the Vice President, Development Economics --- was prepared as a background paper for World Development Report 1995 on labor.