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January 30, 2008


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Divergence in growth while looking at countries, convergence looking att people:

I think this is driven by the same factor at play in the Balassa-Samuelsson currency-exchange rate model: cross country-border labor immobility. With production increasing slightly faster than linearly with capital, the latter has historically tended to effectively increase its productivity through geographical concentration. Urbanization and industrialization has worked together. But where there is a country border over which capital can move freely while labour cannot there is a problem.

If industrial capital is scarce enough its productivity may be too low to compete for labor even against self-employed traditional farming. Capital flows out of Africa - diamonds, oil - wile the people are stuck inside with traditional farming or armed fighting for control over the exportable capital resources.

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