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On the Mechanics of Economic Convergence

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Abstract

In macroeconomic dynamic models the speed at which output converges to its steady state is of outstanding interest. Theoretical investigations usually focus on the asymptotic speed of convergence only. This procedure is, however, unnecessarily restrictive and hides important information. The paper at hand provides a straightforward and simple analytical decomposition of the instantaneous rate of convergence into its economic determinants. In addition, the resulting convergence-accounting formula is applied to analyse the transition process of a general R&D-based endogenous growth model. As a result, the driving forces behind the convergence process are identified.

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File URL: http://www.cer.ethz.ch/research/wp_03_25.pdf
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Bibliographic Info

Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 03/25.

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Length: 35 pages
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:eth:wpswif:03-25

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Keywords: Convergence accounting; rate of convergence; decomposition; convergence mechanisms; R&D-based growth;

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References

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  1. de la Fuente, A, 1996. "On the Sources of Convergence : A Close Look at the Spanish Regions," UFAE and IAE Working Papers 362.96, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Ortigueira, Salvador & Santos, Manuel S, 1997. "On the Speed of Convergence in Endogenous Growth Models," American Economic Review, American Economic Association, vol. 87(3), pages 383-99, June.
  3. Thomas M. Steger, 2005. "Welfare Implications of Non-scale R&D-based Growth Models," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(4), pages 737-757, December.
  4. Eicher, Theo S & Turnovsky, Stephen J, 1999. "Non-scale Models of Economic Growth," Economic Journal, Royal Economic Society, vol. 109(457), pages 394-415, July.
  5. Charles I. Jones & John C. Williams, . "Too Much of a Good Thing? The Economics of Investment in R&D," Working Papers 95006, Stanford University, Department of Economics.
  6. Theo S. Eicher & Stephen J. Turnovsky & Uwe Walz, 2000. "Optimal Policy for Financial Market Liberalizations: Decentralization and Capital Flow Reversals," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 19-42, 02.
  7. Eicher, Theo S. & Turnovsky, Stephen J., 2001. "Transitional dynamics in a two-sector non-scale growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 85-113, January.
  8. Barro, Robert J, 1999. " Notes on Growth Accounting," Journal of Economic Growth, Springer, vol. 4(2), pages 119-37, June.
  9. Eicher, Theo S & Turnovsky, Stephen J, 1999. " Convergence in a Two-Sector Nonscale Growth Model," Journal of Economic Growth, Springer, vol. 4(4), pages 413-28, December.
  10. Segerstrom, Paul S, 1998. "Endogenous Growth without Scale Effects," American Economic Review, American Economic Association, vol. 88(5), pages 1290-1310, December.
  11. Steger, Thomas M., 2007. "Flexibility, Sectoral Hysteresis, And Downturns," Macroeconomic Dynamics, Cambridge University Press, vol. 11(01), pages 128-148, February.
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Cited by:
  1. Valente, Simone, 2006. "Intergenerational Transfers, Lifetime Welfare and Resource Preservation," MPRA Paper 1042, University Library of Munich, Germany.
  2. Simone Valente, 2005. "Genuine Dissaving and Optimal Growth," Others 0505009, EconWPA.
  3. Valente, Simone, 2006. "Trade, Envy and Growth: International Status Seeking in a Two-Country World," MPRA Paper 1095, University Library of Munich, Germany.
  4. Di Maria, Corrado & Valente, Simone, 2006. "The Direction of Technical Change in Capital-Resource Economies," MPRA Paper 1040, University Library of Munich, Germany.

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