Type: Economics
Pages: 3 | Words: 632
Reading Time: 3 Minutes

Effects of economic growth on income convergence and income divergence. In my opinion, incomes tend to converge at the initial level of low economic growth. As the economy continues to growth, the incomes diverge, thereby increasing income inequality between the rich and the poor up to a certain threshold. Any further growth in the economy beyond the threshold leads to a convergence of incomes, hence resulting into reduced income inequality. Barro (2011) defines income convergence as the narrowing of the gap in incomes between poor and rich economies. Richer economies tend to grow at a lower rate than the poorer economies, thus leading to income convergence. Friedman (2007) also asserts that income convergence occurs when poorer economies tend to grow at a faster rate than richer economies.

According to Blank (2009), incomes tend to converge due to economic growth, because the poorer economies will tend to imitate production methods and technologies used by richer economies, thereby becoming more productive. In addition, as the economy grows, capital and other factors of production will move from places where they are abundant to where they are scarce. This results into adoption of new processes, technologies and products. According to Friedman (2007), such factors as acquisition of new technological knowledge and production ideas may also lead to convergence of income, especially through Foreign Direct Investments (FDIs).

On the other hand, divergence of income results from expansion of the economy beyond a particular threshold. When economies expand, intensive production is induced. This leads to intensive investment which results into redistribution of incomes. It is also important to note that the convergence and divergence of income as a result of economic growth depends on the size of the economy as well as the regions. For example, divergence of incomes due to economic growth is higher in rural areas as compared to urban areas.

Agglomeration economies, its effects on growth and location of economic activity on an economic plane and relation to economic clustering

Agglomeration economies refer to the benefits derived by firms that are located one near another. According to Glaeser (2010), agglomeration economies refer to decrease in costs of production that firms get from creating industrial clusters. It also leads to greater specialization by the firms.

In my opinion, agglomeration economies affect growth by pooling together different firms and factors of production. Furthermore, agglomeration economies attract more suppliers, customers and producers. This results into increased production, hence improved economic growth. In addition, agglomeration economies lead to formation of clusters of economic activities, thus leading to accumulation of factors of production, innovative methods of production and new technologies. This further leads to increased growth.

On the other hand, agglomeration economies affect location of economic activities on an economic plane by attracting firms to particular areas. This leads to concentration of firms in specific areas. Moreover, agglomeration economies affect the location of economic activities in that most firms will tend to relocate to areas where the costs of production are lower.

Agglomeration economies is related to economic clustering in that it leads to increased concentration of firms in specific areas, hence centralizing economic activities. This results into economic clustering.

Effect of economic growth on land values. From my part, economic growth affects land values in regions adjacent to rapidly growing communities due to increased demand for land for economic activities such as agriculture and setting up of firms or industries. When the economy of a given region grows, the value of such factors of production as land increases. This is because of increased demand and utilization of the factors of production.


In my opinion, sprawl is not a natural economic process because it is caused artificially by human activities, for instance, urban dwellers encroach the agricultural land for urban settlement. This has led to depletion of various natural resources such as forests and clean air due to pollution.

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