Estimating the Speed of Convergence in the Neoclassical Growth Model: An MLE Estimation of Structural Parameters Using the Stochastic Neoclassical Growth Model, Time-Series Data, and the Kalman Filter
AbstractAn important question is whether underdeveloped countries will converge to the per-capita income level of developed countries. Economists have used the disequilibrium adjustment property of growth models to justify the view that convergence should occur. Unfortunately, the empirical literature does not obey the "Lucas" admonition of estimating the structural parameters of a growth model that has the conditional convergence property and then computing the speed of convergence implied by the estimated structural parameters. In this paper, we use U.S. time-series data to estimate the structural parameters of a stochastic neoclassical growth model and compute the speed of conditional convergence in the non-stochastic model from the structural parameter estimates. We follow an approach used to econometrically estimate business cycle models via maximum likelihood. We obtain a speed of conditional convergence of 12.8 percent per-year for logarithmic consumer preferences and find that the data rejects the hypothesis of the 2 percent per-year speed of conditional convergence obtained in the empirical literature.
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Bibliographic InfoPaper provided by College of the Holy Cross, Department of Economics in its series Working Papers with number 0810.
Length: 27 pages
Date of creation: Sep 2008
Date of revision:
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Web page: http://www.holycross.edu/departments/economics/website/
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Convergence; Transitional Dynamics; Economic Growth; Economic Development; Real Business Cycle Models; Stochastic Growth Models; Time-Series Analysis;
Find related papers by JEL classification:
- C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E - Macroeconomics and Monetary Economics
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-20 (All new papers)
- NEP-DGE-2008-09-20 (Dynamic General Equilibrium)
- NEP-KNM-2008-09-20 (Knowledge Management & Knowledge Economy)
- NEP-MAC-2008-09-20 (Macroeconomics)
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