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Solow or Lucas? Testing Speed of Convergence on a Panel of OECD Countries

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  • Arnold, Jens

    ()
    (OECD)

  • Bassanini, Andrea

    ()
    (OECD)

  • Scarpetta, Stefano

    ()
    (OECD)

Abstract

We test whether the growth experience of a sample of 21 OECD countries over the past three decades is more consistent with the augmented Solow model or the Uzawa-Lucas model, by exploiting the different non-linear restrictions implied by them as regards the relationship between factor shares and speed of convergence. Using cross-country/time-series data, we specify our growth regression without imposing cross-country homogeneity restrictions on the speed of convergence and short-run parameters. Indeed, both theoretical models imply that the speed of convergence to the steady state differs across countries due to heterogeneity in population growth, technical change or progressiveness of income taxes. Our estimated speed of convergence is too fast to be compatible with the augmented Solow model, but is consistent with the Uzawa-Lucas model with constant returns to scale. Our main findings are robust to several robustness tests.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5261.

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Length: 25 pages
Date of creation: Oct 2010
Date of revision:
Publication status: published in: Research in Economics, 2011, 65 (2), 110-123
Handle: RePEc:iza:izadps:dp5261

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Keywords: PMG estimators; AK models; human capital; speed of convergence; panel data;

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Cited by:
  1. Hartwig, Jochen, 2014. "Testing the Uzawa–Lucas model with OECD data," Research in Economics, Elsevier, vol. 68(2), pages 144-156.
  2. Herbst, Mikolaj & Rok, Jakub, 2013. "Mobility of human capital and its effect on regional economic development. Review of theory and empirical literature," MPRA Paper 45755, University Library of Munich, Germany.
  3. Pop-Silaghi, Monica & Jude, Cristina & Alexa, Diana & Litan, Cristian, 2012. "Do business and public sector research and development expenditures contribute to economic growth in central and eastern European countries? A dynamic panel estimation," Economics Discussion Papers 2012-4, School of Economics, Kingston University London.

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