Autocatalytic Growth and Development and the South-North Convergence

Abstract:

This article engages with the issue of income convergence between North and South by using the autocatalytic hypothesis of growth and development. Two system models describe positive and negative feedback loops which govern economic flows between North and South. The analysis of endogenous and exogenous negative feedbacks points to the process that would slowly push the world economy towards vanishing growth rates and, eventually, halt its material growth. The present work rejects convergence in per capita GDP between North and South from the theoretical perspective. Such an outcome would stand against one of the fundamental properties of autocatalytic dynamics—centripetality— that has its causal roots in the competitive process and capitalist institutions. In that sense, the autocatalytic hypothesis provides a theoretical explanation for those empirical analyses that dismisses convergence.

Keywords::

• income convergence
• economic growth and development
• autocatalytic hypothesis

JEL Classification Codes::

• O1
• P1
• Q32

Notes

¹ This refers to “conditional convergence hypothesis,” where countries that are similar in their structural characteristics (e.g., preferences, technologies, rates of population growth, and government policy) converge to one another in the long-run independently of their initial conditions (Galor 1996).

² I refer to economic growth in its physical dimension only. Any argument about the zero growth in this essay is not referring to the possible, moderate, inflationary growth of the world economy.

³ Spence (2011) and Dervis (2018) implicitly refer to the “absolute convergence hypothesis”—that countries converge to one another in the long-run independently of their initial conditions (Galor 1996).

⁴ See, for example, the overviews in Patrick Llerena and Andréc Lorentz (2003) and Phillip Anthony O’Hara (2008).

⁵ The notion of economic complexity is not new to institutional economists: in 1976, Daniel Fusfeld remarked that economy can be conceived as a complex system and economics as a branch of system theory (Fusfeld 1976, 145). Over the past quarter of the century, economic complexity has been discussed from many different perspectives in heterodox economics (e.g., Anderson, Arrow, and Pines 1988; Rosser 1999; Potts 2000; Foster 2005; Raine, Foster, and Potts 2006; Fontana 2008; Matutinović 2010); and complexity economics established itself as a new paradigm of economic thinking, independent of, and incompatible with, the neoclassical mainstream (Fontana 2008).

⁸ It is common that AC sets give rise to higher-level emergent structures (Hordijk 2013).

⁹ Interaction strength of the specific positive feedbacks described in the model in Matutinović, Salthe, and Ulanowicz (2016), may be substantially different in LDC and MDC, and would vary from region to region and from country to country (i.e., different parameters would apply in the quantitative interpretation of the model). Competitive interactions and trade exchange between MDC and LDC do not produce necessarily the same feedback loops as in the uncoupled MDC AC set (Matutinović, Salthe, and Ulanowicz 2016). For example, market competition between MDC firms and LDC firms in the textile sector may not lead to productivity gains and increases in a labor share of income at the global level. MDC firms may decide to relocate production in LDC where labor productivity is much lower than at home, but low labor costs more than compensate for the difference in productivity levels. Labor exploitation (including child labor and underpaid woman labor) combined with job losses or real wages reduction in MDC may result in a decreasing labor share of income at the global level. However, these differences are not distorting the overall dynamics described in the present model.

¹⁰ Labor productivity in developing economies started growing rapidly in the nineties, exceeded that of developed countries in 2001, and peaked in 2006, thereafter having a declining trend (Akhtar, Hahm, and Hasan 2016, 100).

¹¹ In explaining differential economic success among LDC countries, Deepak Nayyar (2013) identifies “cumulative causation that creates market-driven virtuous or vicious circles,” thus recognizing the presence of positive feedbacks that drive the AC process.

¹² Net transfers on debt equal net capital flows minus interest payment on existing loans. We note that long-term aggregate net capital transfers to developing countries, including net FDI and grants, remained positive in the whole period 1970–2012, except two years, 1987 and 1988 (Szrimai 2015, 570–573). However, when we also include in the balance tax holidays granted to multinational companies, offshore capital flight, mostly in the form of tax avoidance, and patent licensing fees under the WTO agreement on intellectual property rights (Hickel 2013), then the overall net capital transfers may be indeed from the LDC to MDC, as the AC hypothesis would have predicted.

¹³ The number of restrictive measures introduced by WTO Members grew by 11% during the period 2008– 2016. Of the 2,835 trade-restrictive measures, including trade remedies, recorded for WTO Members since 2008, only 708, or 25%, had been removed by mid-May 2016 (WTO 2016a).

¹⁴ The World Bank study (2016) estimates that from today’s technological standpoint, two-thirds of all jobs are susceptible to automation in the developing world.

¹⁵ For a more detailed discussion and literature overview of supply of critical resources to the economic system and planetary biophysical boundaries see Matutinovic, Salthe, and Ulanowicz (2016).

¹⁶ See, for example, discussion of Dirk Helbing (2013) regarding systemic interconnection between various natural, political, and economic risks at the global level, and Chris Abbott (2008), Caitlin Werrell and Freancesco Femia (2015) for perils that climate change poses for national and international security.

Additional information

Notes on contributors

Igor Matutinović

Igor Matutinović is at the Zagreb School of Economics and Management, and at the Faculty of Electrical Engineering and Computing, University of Zagreb (Croatia). The author thanks the anonymous reviewer for valuable questions and remarks and the GfK Group for supporting my work.