Growth and Resilience Theory: A new way of conceptualising convergence dynamics.

Abstract: Recent studies have highlighted how building resilience to ‘shrinking’ episodes, as opposed to increasing growth rates, appears to be the missing piece of the puzzle when it comes to between-country income convergence. All economies seem to be able to grow, but few countries have been able to drastically improve their shrinking patterns, which has underpinned the divergence often argued in literature. However, whilst growth theory does not take into account the role of shrinking, shrinking has not yet clearly defined itself from growth processes, leaving shrinking research more generally indistinguishable from classic growth economics. This thesis proposes a new theoretical framework that solves these research gaps. Growth and resilience theory argues that building resilience to shrinking is movement through the aggregate production function, whilst growth is a shift of the function itself. Long-run convergence is an economy’s ability to accomplish both of these feats simultaneously by balancing their growth- and resilience-based institutions. Thus, a ‘Goldilocks Area’ of long- term development patterns is proposed that would categorise a successful catch-up experience and highlight how growth and resilience to shrinking are two sides of the same coin.