Are poorer countries catching up with richer countries

Annual gross domestic product (GDP) is a common way to compare economic standards of living between countries. A more specific measure is the inflation-adjusted value of aggregate economic activity divided by the number of persons in the population. Or real GDP per capita.

Real GDP per capita allows us to compare, for example, rich countries with very large populations with poorer countries with smaller populations.

Our first FRED graph, above, shows real GDP per capita between 1960 and 2019 in three countries: the United States (blue line), Japan (green line), and India (red line). These countries' economic standards of living, measured in dollars valued at 2017 prices, are markedly different throughout the 59 years of available data. But a closer inspection of the data can reveal a more nuanced picture, plotted in the FRED graph below in year-over-year growth rates.

• Between 1961 and 1974, Japan's GDP was catching up to US GDP. Economists call this process of poorer countries catching up to richer countries convergence.
• For many years between 1961 and 2000, India's GDP wasn't catching up to (or even keeping up with) US GDP. Economists call this process of widening gaps between poorer and richer countries divergence.

Both of these observations are revealed in a version of the top graph with a logarithmic scale, which is best suited for analyzing long time series with different growth rates.

Recent research has looked into the relationship between growth rates and levels of GDP per capita in more than 100 countries: B. Ravikumar, Dawn Chinagorom-Abiakalam, and Amy Smaldone at the St. Louis Fed show that the year 2000 marked a change in the broad trends of economic divergence and convergence. With Penn World Table 10.01 data, they show that, between 1960 and 2000, divergence was prevalent. Between 2000 and the time of this writing, living standards in low-income countries have been catching up to those in high-income countries, signaling a period of convergence.

For more about this and other research, visit the publications page of the St. Louis Fed's website, which offers an array of economic analysis and expertise provided by our staff.

How these graphs were created: First graph: Search FRED for and select "Real GDP at Constant National Prices for United States." From the "Edit Graph" panel, use the "Edit Line" tab to customize the data by searching for "Population United States Groningen" (Groningen is to make sure to find the same source). Don't forget to click "Add." Next, type the formula a/b and click "Apply." Next, use the "Add Line" tab to repeat the process for India, and then Japan. Second graph: Take the first and, for each line, change the units to "Percent Change From Previous Year" at the bottom of the menu.

Suggested by Diego Mendez-Carbajo.