CONVERGENCE CLUBS AND SUBSISTENCE ECONOMIES

This paper focuses on one possible explanation for the empirical evide nce of (a) income convergence among the world's poorest countries and among its wealthiest countries, and (b) income divergence among most o f the remaining countries. The model incorporates the assumption of su bsistence consumption into the neoclassical exogenous growth model, yi elding outcomes that are consistent with the convergence-divergence em pirical evidence. While subsistence consumption can lead to negative s aving and disaccumulation of capital, it can also coincide with positi ve saving and accumulation of capital. The model predicts that the poo rer the country, the lower its saving rate, a result that also appears to be borne out by the evidence provided here. (C) 1998 Elsevier Scie nce B.V.