August 30, 20127 Economies with a low per capita income –
reflective of a low capital stock and a low level of technology
absorption – find it easier to generate high economic growth
rates than high per capita economies operating near the
technological frontier. Naturally, low per capita income is only
a necessary, not a sufficient condition, hence ‘conditional
convergence’. Japan ceased to converge with US income levels in
the wake of the 1990 financial crisis. Both Japan and Korea
experienced a significant downward shift in their growth rates
after their per capita income reached around 50% of US income in
the late 1960s and late 1990s, respectively. This is by and
large consistent with the Eichengreen middle-income trap
according to which growth slows down by on average 350 bp once
the critical level of USD 15,100 (in 2005 dollars) is reached.
China will reach this level in 2016. However, China’s per capita
income is projected to remain below 40% of US income by 2020 and
not reach 50% (much) before 2030. I