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is positive but diminishing).
From this insight follows two very simple observations. If we compare two economies operating with two
different levels of accumulated capital, then we will see
that 1) the economy with more capital will have a higher
income per capita, and 2) a unit of investment in the
economy with the lower level of capital will generate more
growth than a unit of investment in the economy with the
higher level of capital. This is the basis for convergence. If
capital is mobile, then returns will be greatest in the low
income economy, the rate of investment will be higher,
catch up, first in western Europe, then Japan, Korea, and
more recently China. However, some regions, notably subSaharan Africa, showed limited evidence of convergence
from the era of independence (roughly between 1950 and
1970) to the millennium.
The literature also distinguishes between conditional
and unconditional convergence. Unconditional convergence implies that convergence is observed regardless of
variations in specific national characteristics (e.g. climate,
political institutions, education levels), while conditional
convergence implies that these factors play a role and must
“Convergence is more likely to be observed in sectors where
international trade ensures competition and adoption of best
practices...”
and thus its rate of growth will also b HY