ANALYSIS OF THE CONVERGENCE OF INCOME LEVELS PER CAPITA OF COUNTRIES OF THE WORLD

Asyrafi, Abrar Alfarqi (2024) ANALYSIS OF THE CONVERGENCE OF INCOME LEVELS PER CAPITA OF COUNTRIES OF THE WORLD. S1 thesis, UNIVERSITAS ANDALAS.

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Abstract

This study analyzes income convergence trends between groups of countries based on geographical regions from 1980 to 2022. There are two distinct types of convergence examined: sigma convergence, which measures the reduction in income dispersion between regions over time through coefficient of variation analysis, and beta convergence, which tests whether poorer economies grow faster than richer ones to eventually catch up. Using panel data regression models, the research examines these convergence patterns of GDP per capita across East Asia, Europe, Latin America, Middle East-North Africa, South Asia, and Sub-Saharan Africa. Data on GDP per capita, human development index, investment ratios, and trade statistics were collected from international sources like the World Bank and IMF. The results show sigma convergence occurred in 2020, likely due to the global impact of the COVID-19 pandemic. However, absolute beta convergence was not achieved, indicating lower-income countries have not caught up with higher-income countries. The conditional convergence model found initial income, foreign direct investment, and labor force positively affect per capita income growth. The absolute convergence rate was 6.66% annually with a half-life of 10 years, while conditional convergence was 6.09% with an 11- year half-life. The study concludes that despite the temporary reduction in dispersion shown by sigma convergence in 2020, the lack of beta convergence indicates that fundamental income disparities between regions persist, recommending policies to create a more conducive investment climate and better utilization of countries' economic potential to reduce inequalities. Keywords: Income Convergence, Regional Disparities and Economic Growth. Undergraduate Thesis Advisor : Arie Sukma, SE. M.Sc

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