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Peaks vs. Components

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  • Vollmer, Sebastian
  • Holzmann, Hajo
  • Schwaiger, Florian

Abstract

We analyze the cross-national distribution of GDP per capita and its evolution from 1970 to 2003. We argue that peaks are not a suitable measure for distinct growth regimes, because the number of peaks is not invariant under strictly monotonic transformations of the data (e.g. original vs. log scale). Instead, we model the distribution as a finite mixture, and determine its number of components (and hence of distinct growth regimes) from the data by rigorous statistical testing. We find that the distribution appears to have only two components in 1970-1975, but consists of three components from 1976 onwards. The level of GDP per capita stagnated in the poorest component, and the richest component grew much faster than the medium component. These findings empirically confirm the predictions of the unified growth theory.

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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-452.

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Length: 17 pages
Date of creation: Jul 2010
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Handle: RePEc:han:dpaper:dp-452

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Keywords: twin peaks; economic growth; convergence;

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References

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  1. Hanfeng Chen & Jiahua Chen & John D. Kalbfleisch, 2004. "Testing for a finite mixture model with two components," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 66(1), pages 95-115.
  2. Strulik, Holger, 2009. "Patience and Prosperity," Hannover Economic Papers (HEP) dp-426, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  3. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  4. Schumacher, Ingmar, 2009. "Endogenous discounting via wealth, twin-peaks and the role of technology," Economics Letters, Elsevier, vol. 103(2), pages 78-80, May.
  5. Sala-i-martin, X., 1995. "The Classical Approach to Convergence Analysis," Papers 734, Yale - Economic Growth Center.
  6. Danny Quah, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEP Discussion Papers dp0280, Centre for Economic Performance, LSE.
  7. Graham, Bryan S & Temple, Jonathan, 2001. "Rich Nations, Poor Nations: How Much can Multiple Equilibria Explain?," CEPR Discussion Papers 3046, C.E.P.R. Discussion Papers.
  8. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  9. Charles I. Jones, 1997. "On the Evolution of the World Income Distribution," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 19-36, Summer.
  10. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," Economic Journal, Royal Economic Society, vol. 106(437), pages 1056-69, July.
  11. Quah, Danny T, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," Economic Journal, Royal Economic Society, vol. 106(437), pages 1045-55, July.
  12. Bianchi, Marco, 1997. "Testing for Convergence: Evidence from Non-parametric Multimodality Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(4), pages 393-409, July-Aug..
  13. Hanfeng Chen & Jiahua Chen & John D. Kalbfleisch, 2001. "A modified likelihood ratio test for homogeneity in finite mixture models," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 63(1), pages 19-29.
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Cited by:
  1. Sebastian Vollmer & Hajo Holzmann & Florian Ketterer & Stephan Klasen, 2013. "Distribution dynamics of regional GDP per employee in unified Germany," Empirical Economics, Springer, vol. 44(2), pages 491-509, April.

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