We saw that as recently as 1800, average world GDP per capita was only $250 per year, according to DeLong's estimates. Even today, there are poor countries in Africa where GDP per capita averages less than $500 per year. On the other hand, the countries that belong to the Organization for Economic Cooperation and Development (OECD), consisting of the U.S., Canada, Japan, and many nations of Western Europe, have average GDP per capita today of over $20,000.
According to Angus Maddison's data, real per capita GDP for various countries and regions in 1998 was
|Country||Per Capita GDP|
|Other Latin America||$6,000|
DeLong makes the following remarks about GDP in different groups.
In 1950, the gap between the U.S. and other OECD economies was wider than it is today. In 1950, Japan's GDP per capita was only 20 percent of the U.S. level, and only Britain's was over 50 percent of the U.S. level. Now, most OECD countries are over 70 percent of the U.S. level.
Communism had an enormous adverse impact on relative GDP. In 1997, Communist North Korea's GDP per capita was only $700, but South Korea's was $13,600. Russia's GDP per capita was only $4400, but Finland's was $20,100. Cuba's per capita GDP was $3100, but Mexico's was $8400.
In spite of convergence within the OECD, overall economic performance has diverged.
Even if attention is confined to noncommunist-ruled economies, there still has been enormous divergence in relative output-per-worker levels over the past 100 years. Since 1870, the ratio of riches to poorest economies has increased sixfold. In 1870 two-thirds of all countries had GDP per capita levels between 60 and 160 percent of the average. Today the range that includes two-thirds of all countries extends from 35 to 280 percent of the average.
--DeLong, Macroeconomics, p. 139
This divergence is not necessarily what one might expect. In fact, we would expect the following phenomena to promote convergence.
People who live in poor countries will want to move to rich countries, in order to take advantage of higher wages. This should increase the supply of labor in rich countries, bringing down average income there. It should reduce the supply of labor in poor countries, and with less excess labor the average incomes of workers should rise.
Businesses in rich countries will want to take advantage of cheap labor overseas. They will move their plants and equipment to those countries. This should help to raise labor incomes in poor countries while holding down labor incomes in rich countries.
Information and knowledge to enhance productivity should flow from countries that have that knowledge to countries that need such knowledge. As poor countries take advantage of ideas developed in rich countries, income disparity should narrow.