Convergence in Economic Growth between Rich and Poor Countries : A SAM Analysis

Empirical studies emphasising supply factors argue that poor countries as a whole show a catching up tendency of rich countries as a whole. We offer a demand side SAM model to highlight the convergence in economic growth. The model predicts, after adjusting for peculiarities of economic systems, higher economic growth for poor compared to rich countries. The main cause behind this convergent tendency is the ability of a poor country to increase significantly shares of government expenditure and foreign demand in GDP; and reap growth benefits from associated changes in the compositional patterns of demanded goods and services. In contrast, rich countries are near satiation regarding shares of government and exports in GDP