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Transition Matrix and Convergence

The document discusses mobility matrices which show the percentage of countries transitioning between income categories over time. It analyzes Quah's mobility matrix for 1962-1984, finding middle-income countries had more mobility while the poorest and richest saw little change, suggesting history of underdevelopment or poverty hinders mobility.

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Gunjan Choudhary
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65 views8 pages

Transition Matrix and Convergence

The document discusses mobility matrices which show the percentage of countries transitioning between income categories over time. It analyzes Quah's mobility matrix for 1962-1984, finding middle-income countries had more mobility while the poorest and richest saw little change, suggesting history of underdevelopment or poverty hinders mobility.

Uploaded by

Gunjan Choudhary
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Absolute convergence and Mobility

Matrix

Debajit Jha
Jindal School of Government and Public Policy
O. P. Jindal Global University
Mobility Matrix
• Even though we discussed in detail about the hypothesis of ultimate convergence
of all countries to a common standard of living, an alternative way of presenting
is based on Quah [1993].

• He used per capita income data from Summers-Heston data set to construct
“mobility matrices” for countries.

• To understand how these matrices work, let’s start by converting all per capita
incomes to fractions of the world’s per capita income.

• Thus, if country X has a per capita income of $1,000 and the world average is
$2,000, we give country X an index of 1/2.
• Now let’s create categories that we will put each country into.

• Quah used the following categories: 1/4, 1/2, 1, 2, and ∞.

• For instance, a category with the label 2 contains all countries with
indexes between 1 and 2;

• Similarly, the category 1/4 contains all countries with indexes less
than 1/4; and the category ∞ contains all countries with indexes
exceeding 2, and so on.
• Now imagine doing this exercise for two points Income mobility of countries, 1962–84
in time, with a view to finding out if a country
transited from one category to another during
this period.

• You will generate what we might call a mobility


matrix. The diagram in the next slide illustrates
this matrix for the twenty-three year period
1962–84, using the Summers–Heston data set.

• The rows and columns of the matrix are exactly


the categories that we just described.

• Thus a cell of this matrix defines a pair of


categories. What you see is a number in each of
these cells. Source: Quah [1993]
The income mobility of countries, 1962–84
• For example, the entry 26 in the cell defined by
the categories 1 (row) and 2 (column).

• This entry tells us the percentage of countries


that made the transition from one category to
the other over the twenty-three year period.

• In this example, therefore, 26% of the countries


who were between half the world average and
the world average in 1962 transited to being
between the world average and twice the
world average in 1984.

Source: Quah [1993]


• A matrix constructed in this way gives you a fairly good sense of how much
mobility there is in relative per capita GNP across nations.

• A matrix with very high numbers on the main diagonal, consisting of those special
cells with the same row and column categories, indicates low mobility.

• According to such a matrix, countries that start off in a particular category have a
high probability of staying right there.

• Conversely, a matrix that has the same numbers in every entry (which must be 20
in our 5 × 5 case, given that the numbers must sum to 100 along each row) shows
an extraordinarily high rate of mobility.

• Regardless of the starting point in 1962, such a matrix will give you equal odds of
being in any of the categories in 1984.
The income mobility of countries, 1962–84
• Notice that middle-income countries have far greater mobility
than either the poorest or the richest countries.

• For instance, countries in category 1 (between half the world


average and the world average) in 1962 moved away to “right”
and “left”: less than half of them remained where they were in
1962.

• In stark contrast to this, over three-quarters of the poorest


countries (category 1/4) in 1962 remained where they were,
and none of them went above the world average by 1984.

• Likewise, fully 95% of the richest countries in 1962 stayed right


where they were in 1984.

• This is interesting because it suggests that although everything


is possible (in principle), a history of underdevelopment or
extreme poverty puts countries at a tremendous disadvantage.

Source: Quah [1993]


The income mobility of countries, 1962–84
• There is actually a bit more to the figure than lack of
mobility at the extremes.

• Look at the next-to poorest category (those with incomes


between one-quarter and one-half of the world average
in 1962).

• Note that 7% of these countries transited to incomes


above the world average by 1984.

• However, over half of them dropped to an even lower


category.

• Thus it is not only the lowest-income countries that


might be caught in a very difficult situation. In general, at
low levels of income, the overall tendency seems to be
movement in the downward direction.
Source: Quah [1993]

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