Advanced Macro & Growth · intermediate
What moves on the Convergence Hypothesis diagram
Institutional failure suppresses the investment that catch-up requires, flattening the convergence line: distance from the frontier stops translating into growth.
Catch-up is not automatic: it needs investment, and investment needs secure property rights.
Institutions crumble: expropriation risk soars and capital flees.
The convergence line sags: being poor no longer delivers fast growth.
This is conditional convergence in action: countries converge only to what their institutions can support. Bad fundamentals mean a poor steady statesteady stateThe resting point of a growth model, where capital per worker stops changing because investment exactly covers depreciation and dilution..
Examiners ask this as: institutions, corruption, state failure, expropriation, governance collapse.
Other scenarios on Convergence Hypothesis