Goldman Sachs on Monday pushed back against the view that the process of poorer countries catching up with richer ones has stalled. The bank contends that much of the academic and public debate that finds weak convergence has overlooked a key factor: population size.
Using population-weighted measures of GDP per capita, Goldman Sachs finds that convergence has been an ongoing characteristic of the world economy since the 1980s rather than a phenomenon concentrated in the 2000-2010 decade. In other words, the bank says the aggregate picture changes materially when larger populations are given proportionate influence in the calculations.
Drivers of the pattern
The report points to Asia's largest countries as the primary engines of the sustained narrowing in income gaps. China is identified as the principal driver beginning in the early 1980s. From the late 1990s, the bank adds, India, Indonesia and Bangladesh have also materially contributed to the trend. Collectively, those four countries account for more than 40% of the world population, a concentration that amplifies their influence on population-weighted measures.
Developed markets and outliers
Among developed economies, Goldman Sachs highlights the United States as a positive outlier. The bank notes that U.S. GDP per capita growth has continued to outpace most other developed markets despite the country's already high level of GDP per capita, contributing to nuances in cross-country comparisons.
Globalization, market size and convergence
The analysis also addresses the role of globalization. Periods of rapid global integration - exemplified by the 2000-2010 window - are especially beneficial for small economies with limited domestic markets. However, the bank finds that for larger emerging market economies, particularly in East Asia, the process of convergence appears comparatively robust even outside of those intense globalization episodes.
Goldman Sachs interprets this ongoing pattern to mean that emerging markets, and East Asian emerging markets in particular, are likely to increase their share of global GDP over time if current trends persist.
Risks to the trajectory
The report outlines upside and downside risks to future convergence. On the upside, further adoption of artificial intelligence could strengthen relative performance in the United States and parts of East Asia, including China, South Korea and Taiwan. On the downside, an increase in protectionism could roll back aspects of globalization that have supported catch-up, while climate change is singled out as a specific vulnerability for Southern Asia and some regions in Africa.