Convergence Aspect of Capital Formation
Economic growth has three main ingredients. Physical capital, labour and the productivity are the main ingredients of economic growth. The physical capital encompasses all the machines, equipment, buildings and land. All other tangible inputs that are involved into the production process are counted in the production process. In the instances that individuals invest in more equipment, they find the opportunity to expand their production over time that leads to economic growth. Labour encompasses all the people that are employed in the economy (Ray, Das & Das, 2016). Economic expansion is simply the increase in number of the working people. This gives the main reason for the growing economic growth and participation. Taking an example of the entry of female workers in the economy this is a great boost to the growth of many economies around the world. The amount of output that is derived from a given level of labour and physical capital defines the level of productivity. This takes into account of the combination of the working men and machines brought together considering the organisation of the work. This means that economies will remain to converge in the future.
There occurs a condition of cyclical interdependence in the development of economies. It might seem confusing in that both the emerging and developing economies have no links with the advanced economies in the long run (Ray, Das & Das, 2016). A new convergence starts from the strengthened interdependence that coincides at the third trend that relates to income distribution. Commonly, distribution of incomes in nearly all the countries of the world has become unequal. The top earners share of the income has seen an increase drastically.
Currently, the world has entered a new range of convergence that began in the year 1990. This came at a time when the per capita income in the emerging markets and the developing economies began to grow faster than in the advanced economies. This brought sharp division between the rich and the poor countries a situation that was characterised by the weakening of the new economies (Ray, Das & Das, 2016). Industrial revolution and the colonialism era brought divergences in the economies. However, the more the production increased from investing on incomes in the developing countries resulted in to a merge by the developing countries so as to support each other and growth economically. Economic projections are usually risky and this gives a major reason as to why economies merge so as to support each other. A catch up of the growth is illustrated by the way growth has taken place. This is also evident in the way labour is reallocated from high to low productivity sectors that to some extend exhausts growth potentiality.
In normal conditions, economic growth in the developing economies is usually more dependent on the advanced economies in the long run but takes a different account in the short run. Many people are likely to feel that we feel in a more integrated global world. A convergence in the developing economies is the basic trend. Basically, the levels of development in the developing world and the increase in output depends greatly on the outputs of the developed world. In the instances that the developing world has a fast growing output, the growth of the developing world grows fast as well. This characterises the fundamental of convergence in economies.
References
Ray, K., Das, R. C., & Das, U. (2016). Convergence Aspect of Capital Formation: A Study on Major Countries. In Handbook of Research on Global Indicators of Economic and Political Convergence (pp. 51-66). IGI Global.