How has productivity convergence evolved?

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productivity (TFP), which can be estimated only on the basis of special assumptions. Labor productivity is also conceptually closer to per capita income, the variable of primary interest in discussions of global average living standards and the global income distribution. The data set is constructed from national accounts, the World Bank’s World Development Indicators, The Conference Board, and the Penn World Table 9.1 (annex 4B).

The next section discusses the evolution of convergence over time, then the third section estimates the speed of convergence, both regardless of country characteristics and conditional on country characteristics. The fourth section provides evidence for the presence of club convergence and assesses the characteristics of EMDEs that have demonstrated faster degrees of convergence. The final section concludes and discusses policy implications.

Productivity gaps. The gap between advanced economy and EMDE labor productivity levels is large. On average since 2010, labor productivity in EMDEs was just 16 percent, and in LICs just 2 percent, of the advanced economy average (figure 4.1, panel A). Even the top decile of EMDE output per worker was just 70 percent of the lowest decile of advanced economy labor productivity levels.

Among EMDE regions, labor productivity is highest in the Middle East and North Africa (MNA), Latin America and the Caribbean (LAC), and Europe and Central Asia (ECA); it is lowest in Sub-Saharan Africa (SSA) and SAR (figure 4.1, panel B). On average, MNA produced 41 percent of the output per worker of advanced economies, and output per worker in SSA and SAR was well below the EMDE average, at just 8 and 7 percent, respectively, of advanced economy productivity. Other regional features are as follows.

• EAP. EAP economies are characterized by a relatively low dispersion of productivity levels compared to other EMDE regions, ranging from 2-25 percent of the level in the average advanced economy. This may partly reflect the close economic integration of the region’s economies.

• ECA. Close trade integration with the euro area, strong growth since the deep recessions following the collapse of the Soviet Union, and relatively high initial productivity levels in some cases have led economies in the ECA region to have the second-highest average labor productivity level among EMDE regions. However, there is significant variation, with output per worker in nonoil commodity exporters in the region averaging just one-quarter of the output per worker relative to commodity-importing economies.

• LAC. In LAC, the labor productivity gap with advanced economies has widened since the 1970s, with labor productivity falling from 23 to 20 percent of the levels in the average advanced economy.