Free Essay: Living Standards in an Economy

A presumption has been made regarding the fact that those countries having adequate access to same technologies are supposed to be converging in a standard level income. Consequently, studies have also shown that nations considered as poorer and features marginal productivity of capital that is higher should experience faster growth in transition to become a steady state in the long-run. However, it is important to note that in the international economy, accessibility to foreign markets and foreign capital tends to strengthen the approach of convergence. Previous studies indicate that that the living standards of developing and developed countries are showing a pattern of convergence in their economies. This is because their economies are growing at a faster rate compared to those countries having high-income such as the United States, New Zealand, Australia, and Japan. The convergence of these living standards in these countries is closely associated with successful events, government policies, market forces, technological gains, and physical and human capital. These countries tend to have a faster GDP growth compared to the middle and higher-income countries.

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Per Capita GDP in Developing Countries

Numerous studies reveal that developing countries have a comparative advantage to achieve higher economic growth and worker productivity than developed countries in the future. For this reason, this makes it clear that developing nations are catching up per capita GDP with developed countries. One of the arguments behind this convergence of per capita GDP is due to the aspect of diminishing marginal returns (Rodrik, 2012). Even though developing countries are deepening physical and human capital in their economies hence increasing their GDP per capita. According to the law of diminishing returns, when an economy continues expanding is physical and human the marginal gains based on economic growth start decreasing.

The other issue is that developing countries tend to find it more accessible for improving their technologies than developed countries. The developed countries are required to invent new technologies continually as compared to the developing countries that tend to locate different ways of establishing technology that has already been well understood and developed (Rodrik). In the developing countries, the advancement in new technology often provides a way for the economy in sidestepping the value of diminishing marginal returns concerning capital deepening. With the improvement of new technology in the developing countries, it indicates that with provided particular sets of inputs, then there is an increased possibility of more output (Rodrik, 2012). Notably, studies by (Rodrik, 2012) postulates that developing countries are rapidly deepening and growing economies in their both physical and human activities. In furtherance, this also tends to increase technology at the same time. For this fact, the economy has now the opportunity to move from one point to another based on technology aggregate production line. The combination of capital and technology deepening contribute to the increase in the GDP per capita in developing countries.

For this reason, these countries fail to fade away due to diminishing returns. Therefore, the gains that developing countries tend to get from the technology helps in offsetting their diminishing returns concerned with the capital and technology deepening. As a result, it is evident that developing countries are catching up with the per capita GDP with developed countries.

References

Rodrik, D. (2012). Unconditional convergence in manufacturing. The Quarterly Journal of Economics, 128(1), 165-204.