The Great Divergence: A Network Approach

Tinbergen Institute Discussion Paper 14-033/II

44 Pages Posted: 12 Mar 2014

See all articles by Ines Lindner

Ines Lindner

Free University Amsterdam

Holger Strulik

University of Goettingen (Göttingen) - School of Law, Economics, Social Sciences

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Date Written: March 7, 2014

Abstract

We present a multi-country theory of economic growth in which countries are connected by a network of mutual knowledge exchange. Growth is generated through human capital accumulation and knowledge externalities. The available knowledge in any country depends on its connections to the rest of the world and on the human capital of the countries it is exchanging knowledge with. We show how the diffusion of knowledge through the world explains the evolution of global income inequality. It generates a "Great Divergence'', that is increasing world inequality after the take-off of the forerunners of the industrial revolution, followed by a "Great Convergence'', that is decreasing world inequality after the take-off of the latecomers of the industrial revolution. Knowledge diffusion through a Small World network produces an extraordinary diversity of individual growth experiences of initially identical countries including differentiated take-offs to growth as well as overtaking and falling behind in the course of world development.

Keywords: networks, knowledge diffusion, economic growth, world income distribution

JEL Classification: O10, O40, D62, D85, F41

Suggested Citation

Lindner, Ines and Strulik, Holger, The Great Divergence: A Network Approach (March 7, 2014). Tinbergen Institute Discussion Paper 14-033/II, Available at SSRN: https://ssrn.com/abstract=2406946 or http://dx.doi.org/10.2139/ssrn.2406946

Ines Lindner (Contact Author)

Free University Amsterdam ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

Holger Strulik

University of Goettingen (Göttingen) - School of Law, Economics, Social Sciences ( email )

Germany

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