Stanford economist: Globalization is erasing prosperity gap between rich, poor countries

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( — New research by an economist at Stanford’s Hoover Institution shows that globalization and industrial investment are increasing prosperity worldwide and lessening the economic gap between rich and poor countries.

“Projecting these dynamics forward suggests rapid growth across all regions over the coming century that will bring nearly all countries to within 80 percent of the per capita income frontier,” Hoover research fellow Timothy Kane wrote in “Accelerating Convergence in the World Income Distribution,” a working paper that was published on Jan. 17.

Using the Penn World Table, which collects data on purchasing power and national income for 189 countries, Kane’s research indicates that global income distribution is growing at an accelerated rate.

“Two decades ago, the world’s economies seemed to be diverging into rich and poor clubs, widely described as the first world and the third world,” Kane writes. But his research shows “that the population-weighted world income distribution has evolved away from twin peaks into a single, fatter-tailed, wealthier peak.”

After evaluating how many developing countries will exceed the projections of established formulas on global wealth, Kane says he has an optimistic outlook for the future.

“Unless the dynamics fully snap back to the divergent patterns of the Cold War era, future projections are astonishingly rosy,” he writes.

According to Kane’s analysis, industrial investment, globalization and human capital investment are “the principal underlying forces driving the evolution of the world income distribution.”

He adds that if his “theory of an evolving dynamics bears out, then there will be even more booming prosperity and an unprecedented elimination of relatively poor countries.”

Kane explains that the “productivity revolution” begun in England during the Industrial Revolution first spread throughout Western Europe and to English-speaking countries.

But even as it spread to northeast and southern Asia, it was stifled by “populist dictatorships” in Latin America and by the Soviet Union’s blockade in Eastern Europe, with its funding of “anti-market rulers in poor countries.”

Kane points out that “the 1990s were an auspicious time of relative global peace and expanded trade. It was an era of the Internet’s invention and the expansion of China.”

“After 1990, the productivity revolution embodied in the spread of global capitalism re-emerged as the walls, literally and figuratively, collapsed,” he writes.

“In 1990, the world income distribution looked visibly twin-peaked: the number of the relative poorest countries doubled from 1970, while the number of countries in the richest two tiers also increased,” Kane notes. “This 1970-1990 trend is what led many observers to the conclusion that the world was diverging rather than converging.

“However, the most recent data for the year 2010 shows a remarkable turnaround. There was a shift of countries up the distribution tiers, with fewer in the poorest relative group and many more in the richest tier 1…

“If this latter dynamic holds in the near future, then five to six countries will rise to the wealthiest tier every decade, and none will drop,” he writes.

By 2110, Kane predicts, “average income per capita for the vast majority of countries will be above $137,000 per year.”

Kane admits that there are plenty of reasons to approach his growth projections with skepticism, including “the threats of environmental devastation, depletion of natural resources, and human conflict.”

However,” he notes, “the fastest decades of growth in the past century were marked by world wars and horrible genocides. The point is, there are always good reasons to be pessimistic, but the PWT data affirm a more optimistic outlook.”

— Written by Jose R. Gonzalez