Equality, Participation, Transition: Essays in Honour of Branko Horvat

190 Growth Theory and Transition Economies
Empirical research has generated a voluminous literature on another
important aspect of the growth process. Such work attempts to establish
the presence of convergency, that is, to what extent the growth
record of real world economies shows that the differences decrease over
time and that the laggards/late comers/followers begin to catch up
with the leaders.
Even though such literature does not include or address transition
issues per se, it is relevant for economies in transition. The actual incentive
for this body of research came either from a discussion of another
linearity and optimism (namely that of the less developed economies
generating Modern Economic Growth and catching up over time and,
in this context, explaining the success of East Asian economies), or a
discussion among growth theorists (the exogenous vs. endogenous
growth debate). The reason transitioning economies were excluded
was twofold. First, they could not use data from most presently transitioning
economies for the simple reason that these economies did not
exist as separate entities (22 of the 27 European transitioning economies
were generated by the transition, see Bićanić, 1995). Secondly, the data
which did exist was either unreliable and subject to ‘ideological massaging’,
or incompatible since it was not based on UN national accounting.
As a result, data from transition economies could not be used neither
in cross-section work, nor in constructing time series for individual
economies.
There is now a consensus among growth economists that empirical
work on convergence clearly indicates several things. First, there is no
general convergence. What convergence has been found is limited to
two aspects of convergence in the most developed economies. Namely,
it is now generally accepted, first, that a significant number of results
show that the most developed economies seem to be converging
among themselves (see Sala-I-Martin, 1996; or Crafts and Toniolo, 1996);
and, secondly, that there seems to be convergence within the European
Union as regional differences diminish, and in the United States as
states converge (see Sala-I-Martin, 1996; and Barro and Sala-I-Martin,
1995). But beyond this, there is no consensus among economists.
Recent studies point to increasing inequality among per capita income
of individual economies on a global level (see Jones, 1997 or Pritchett,
1997). In spite of a lack of general convergence, some authors do find a
structure emerging. In this empirical work, the ‘Theory of clubs’ or
‘Twin peaks’ theories have attained special prominence (see Quah,
1996a). As explained below, this approach seeks to define common
growth paths for groups (clubs) of similar economies.