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Local Versus Global Convergence Across National Economies

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  • Steven N. Durlauf
  • Paul A. Johnson

Abstract

This paper reexamines the ability of the Solow-type growth models to explain the pattern of cross-country growth rates. Recent authors, most notably Mankiw, Romer and Weil [1990], have argued that differences in national growth rates are compatible with the view that each country has access to a common, neoclassical aggregate production function. Such models imply that, conditional on population growth and savings rates, disparate economies are converging over time to the same level of per capita output. We argue that cross-country growth is better explained by a model of local versus global convergence. Countries converge locally in the sense that economies with similar initial conditions tend to converge to one another. However, we find little evidence of convergence across economies with substantially different initial conditions as measured by per capita output or literacy rates. Further, the impact of capital formation on aggregate output increases with the level of economic development. These results are consistent with models of multiple equilibria in long run behavior. Our results suggest that the Solow growth model should be supplemented with a theory of aggregate production function differences in order to fully explain international growth patterns.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3996.

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Date of creation: Feb 1992
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Handle: RePEc:nbr:nberwo:3996

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  1. Andrew B. Bernard & Steven N. Durlauf, 1994. "Interpreting Tests of the Convergence Hypothesis," NBER Technical Working Papers 0159, National Bureau of Economic Research, Inc.
  2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  3. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  4. Steven N. Durlauf, 1991. "Nonergodic Economic Growth," NBER Working Papers 3719, National Bureau of Economic Research, Inc.
  5. repec:fth:harver:1532 is not listed on IDEAS
  6. 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.
  7. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  8. J. Bradford De Long, . "Productivity Growth, Convergence, and Welfare: Comment," J. Bradford De Long's Working Papers _129, University of California at Berkeley, Economics Department.
  9. Summers, Robert & Heston, Alan, 1988. "A New Set of International Comparisons of Real Product and Price Levels Estimates for 130 Countries, 1950-1985," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(1), pages 1-25, March.
  10. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
  11. Murphy, Kevin M. & Shleifer, Andrei & Vishny, Robert W., 1989. "Industrialization and the Big Push," Scholarly Articles 3606235, Harvard University Department of Economics.
  12. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  13. Baumol, William J, 1986. "Productivity Growth, Convergence, and Welfare: What the Long-run Data Show," American Economic Review, American Economic Association, vol. 76(5), pages 1072-85, December.
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