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Is the speed of convergence constant?

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  • Jordan Rappaport

Abstract

Empirical attempts to measure the speed of convergence -- the rate at which a country's per capita income approaches its steady state relative to its distance from its steady state -- have started from the assumption that it is constant. In contrast, neoclassical models of capital accumulation usually predict that the speed of convergence decreases as income approaches its steady state. Estimating a flexible functional form which allows the speed of convergence to vary suggests that the speed of convergence actually increases as income approaches its steady state. An increasing speed of convergence calls into question structural interpretations of coefficients on conditioning variables in cross-sectional growth regressions. Instead, excluding initial income from cross-sectional growth regressions allows coefficients on exogenous variables to be interpreted as measuring changes in underlying structural relationships.

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Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 00-10.

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Date of creation: 2000
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Handle: RePEc:fip:fedkrw:rwp00-10

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    • Robert J. Barro & Paul Romer, 1993. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr93-1.
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  11. Rappaport, Jordan, 2005. "How does labor mobility affect income convergence?," Journal of Economic Dynamics and Control, Elsevier, vol. 29(3), pages 567-581, March.
  12. Sala-i-Martin, Xavier, 1994. "Cross-sectional regressions and the empirics of economic growth," European Economic Review, Elsevier, vol. 38(3-4), pages 739-747, April.
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  14. David E. Bloom & Jeffrey D. Sachs, 1998. "Geography, Demography, and Economic Growth in Africa," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 207-296.
  15. Jordan Rappaport, 2000. "How does openness to capital flows affect growth?," Research Working Paper RWP 00-11, Federal Reserve Bank of Kansas City.
  16. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November.
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Cited by:
  1. Jean-Louis ARCAND & Béatrice D'HOMBRES, 2002. "Explaining the Negative Coefficient Associated with Human Capital in Augmented Solow Growth Regressions," Working Papers 200227, CERDI.
  2. Jordan Rappaport & Jeffrey D. Sachs, 2001. "The U.S. as a coastal nation," Research Working Paper RWP 01-11, Federal Reserve Bank of Kansas City.
  3. Andrew T. Young & Matthew J. Higgins & Daniel Levy, 2013. "Heterogeneous Convergence," Working Paper Series 19_13, The Rimini Centre for Economic Analysis.
  4. Jordan Rappaport, 2000. "How does openness to capital flows affect growth?," Research Working Paper RWP 00-11, Federal Reserve Bank of Kansas City.
  5. Durlauf, Steven N. & Kourtellos, Andros & Minkin, Artur, 2001. "The local Solow growth model," European Economic Review, Elsevier, vol. 45(4-6), pages 928-940, May.

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