Question

36. Which of the following is not involved in the explanation of why economists would expect convergence in per capita GDP among all countries?

a. Technology transfer

b. Diminishing returns to physical capital

c. The ability of poor countries to attract more investment

d. Beneficial effects of foreign aid in poor countries

Answer 1

Answer C

The ability of poor countries to attract more investment.

The convergence effect is the hypothesis that poorer economies' per capita incomes will tend to grow at faster rates than richer economies. As a result, all economies should eventually converge in terms of per capita income. Developing countries have the potential to grow at a faster rate than developed countries because diminishing returns to physical capital, the poorer countries can replicate the production methods, technologies, and institutions of developed countries (for foreign aids).