Productivity Convergence : Is Anyone Catching Up?

Labor productivity in EMDEs is just under one-fifth of the advanced economy average, while in LICs, it is just 2 percent. Average productivity growth in EMDEs has picked up rapidly since 2000, renewing interest in the convergence hypothesis, which predicts that economies with low productivity should close productivity gaps over time. However, the average rate of convergence remains low, with current growth differentials halving the productivity gap only after over 100 years. Behind the low average pace of convergence lies considerable diversity among groups of countries converging toward different productivity levels (convergence clubs). Many EMDEs have moved into higher-level productivity convergence clubs since 2000, with 16 joining the highest club, primarily consisting of advanced economies. These transitioning EMDEs have been characterized by systematically better initial education levels, greater institutional quality, and high or deepening economic complexity relative to their income level, frequently aided by policies to encourage participation in global value chains. Countries seeking to replicate successes, or continue along rapid convergence paths, face a range of headwinds, including a more challenging environment to gain market share in manufacturing production or to increase global value chain integration.