Groups' income & convergence

Eastern Europe has significantly lower per capita income compared to Western. Nevertheless, as a region, it is probably the third richest. North America is the richest. The three richest Groups are North America's 1, Western Europe's 3 and Eastern Europe's 4. How much richer is North America than Western Europe? How much richer is Western Europe than Eastern?  How much richer are these compared to the rest of the Groups?

We have mentioned several times in previous articles that Group 3 has 1,7 times higher per capita income (ppp) than Group 4. This is according to the original composition for the two Groups. There are a few alternatives though regarding the groups' composition. In one option, the ratio goes down to 1,45, meaning that Group 3 has 1,45 times higher per capita income.

In Appendix 7, data for the Groups are shown. The first column is GDP in purchasing power partiy from World Bank. The second column is the population, from UN. The third column is per capita income ppp. It is calculated from the two other columns. So there could be differences with World Bank per capita income numbers, if they are using different population data.

Ranking for countries is according to per capita income, in descending order, richer countries first. Average per capita income in dollars for the three Groups is; 1) 60.427 2) 58.728 3) 34.602. So, Group 1 has 60.427/58.728 = 1,03 times higher income than Group 3 and the latter has 58.728/34.602 = 1,7 times higher income than Group 4. So Group 1 has 1,03 X 1,70 = 1,75 times higher income than Group 4.

Mexico has much lower income compared to USA - Canada. It is between that of Belarus and N. Macedonia in Group 4. Canada has 2,66 times higher income than Mexico and USA 1,34 times higher than Canada. Mexico's participation in Group 1, brings income lower. How much lower? For each of the three Groups there are some options at the bottom. Group 1 has only Option A. It shows data only for USA - Canada. Without Mexico, average per capita income for Group 1 would be 73.893 dollars, 1,22 times higher.

Option A for Groups 3 and 4 is the same scenario, swap Italy with German Wannabes (Poland, Czech Republic, Baltic countries). Since Italy is richer than German Wannabes, income for Group 3 goes down to 57.760 dollars and for Group 4 goes up to 35.759 dollars. So the income ratio for the two Groups becomes 1,62. In Option B for Group 4, Italy - German Wannabes swap remains and the seven poorest countries are excluded.

These are Armenia, Georgia (Eastern Europe only), Albania, Bosnia (Christian Eastern Europe), Moldova, Ukraine, N. Macedonia (Income criterion added). This can happen if they are not members or if they have trading partner status. Trading partners are not considered part of the Group although they have similar trading privileges with members. In this case, income for Group 4 goes up to 39.004 dollars. The ratio for the two groups becomes 1,48.

In Option C for Group 4, additionally to the changes mentioned above, Israel and Turkiye are excluded. Again, this could happen if they are not members or if they have trading partner status. Income for Group 4 increases slightly to 39.191 dollars and ratio decreases slightly to 1,47. Option B for Group 3 is without Norway, Switzerland, UK. Income for Group 3 goes down to 56.812 dollars and ratio goes down to 1,45.

What about the rest of the Groups? Japan, S. Korea, Singapore, Australia, New Zealand, Qatar, Kuwait, UAE, Saudi Arabia are relatively rich countries. Japan and S. Korea will be in Group 9, Australia and New Zealand in Group 10 and Qatar, Kuwait, UAE, Saudi Arabia in Group 5. We can't know the compositions of Groups 9 and 10. Indicatively, we present one possible option for each group, based solely on geographical criterion.

Although Japan, S. Korea, Singapore, Australia, New Zealand have relatively high incomes, the other countries in the group bring down average income to 24.642 dollars for Group 9 and 20.786 dollars for Group 10. Something similar will probably happen in Group 5. If we take the final options for Group 3 (option B) and Group 4 (option C), the income ratios become as follows;

1,06 - Group 1 to Group 3  ●  1,45 - Group 3 to Group 4  ●  1,40 - Group 4 to Group 9  ●  1,19 - Group 9 to Group 10

Option B (with Turkiye and Israel) for Group 4 leads to roughly equal results. From Appendix 1, Table 1 we can find how long it will take for one group to reach the future per capita income of another. With 1% growth rate difference, Group 3 will need six years to reach Group 1. Of course this is theoretical because Western Europe has lower growth rates than North America. So most likely Group 1 will go further away from Group 3, in terms of per capita income.

With 2% growth rate difference, Group 4 will need eighteen to nineteen years to reach Group 3 but with 3% twelve to thirteen years will be required. This is regarding Groups' convergence. There is also another convergence, between countries in the same Group. For Group 4 this is an option. Groups will have to decide if they set as a goal income convergence among their members.

Another convergence is between countries in different Groups. We have emphasized that if Italy becomes a member of Group 4, it can be much richer than Germany very soon. From Appendix 7,  we can find that income ratio between Germany and Italy is 1,21. With 2% growth rate difference, Italy will need nine to ten years to reach Germany's income but with 3% difference, six to seven years.

In Group 4, Italy will have much higher growth rates compared to staying in Group 3. So the rational choice would be to participate in Group 4. For Hellas (Greece) the ratio with Germany is 1,7. Approximately the same is for Russia and Turkiye since they are close in terms of income. With 2% growth rate difference, it will take them twenty six to twenty seven years to reach Germany's income but with 3% difference eighteen years will be needed. More ratios for Europe are shown in "Two Convergences".

The same reasoning applies to all other Groups.The rule is always the same, for groups or countries. When the poorer group or country has higher growth rates, they come closer, in terms of per capita income. The time a group or a country needs to reach the income level of another depends on a) ratio of incomes b) difference in growth rates. The lower the income ratio and the higher the growth rates difference, the sooner groups or countries will converge in terms of per capita income.