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Does Convergence Exist?

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  • Jahan, Sumbul

Abstract

DOES CONVERGENCE EXIST? Sumbul Jahan Institute of Business Administration (IBA), 2013 Research Project Supervisor: Dr. Farooq Pasha & Dr. Heman D. Lohano The idea of convergence in economics is the hypothesis that poorer economies income will tend to grow at faster rates than richer economies. As a result, all economies should eventually converge; Developing countries have the potential to grow at a faster rate than the developed countries because of availability of better health facilities and technological advancements adopted from developed countries. Convergence can have two meanings: firstly, absolute (σ) convergence refers to a reduction in the dispersion of levels of income across economies; beta (β) convergence occurs when poor economies grow faster than rich ones. This research estimates absolute and beta convergence using natural log of GDP per capita and natural log of GDP per person employed, highlighting the differences in results achieved using two income parameters. This research estimates absolute and beta convergence firstly for all countries of the world; then for all developed countries and all developing countries, which have been classified as per income groups; and lastly, all developing countries have been subdivided into three regional groups and absolute and beta convergence in those three groups namely: Europe & Asia, North & Sub Saharan Africa, and Latin America & the Caribbean for a time period of 31 years from 1980 – 2011. A pattern in results can be observed in this research, especially in three regional groups of developing countries. The differences in results in natural log of GDP per capita and natural log of GDP per person employed can be due to difference in literacy rate, standard of living, technological advancements, attitude towards work and many other structural variables.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 48836.

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Date of creation: Jun 2013
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Handle: RePEc:pra:mprapa:48836

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Keywords: Convergence; absolute; beta;

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  1. Esfandiar Maasoumi & Le Wang, 2008. "Economic Reform, Growth and Convergence in China," Econometrics Journal, Royal Economic Society, vol. 11(1), pages 128-154, 03.
  2. Venus Khim-Sen Liew & Kian-Ping Lim, 2005. "Income Divergence? Evidence of Non-linearity in the East Asian Economies," Economics Bulletin, AccessEcon, vol. 15(1), pages 1-7.
  3. Enzo Weber, 2009. "Macroeconomic Integration in Asia-Pacific: Common Stochastic Trends and Business Cycle Coherence," The IUP Journal of Applied Economics, IUP Publications, vol. 0(3-4), pages 84-106, May-July.
  4. Don J Webber & Paul White, 2004. "Concordant Convergence Empirics," Working Papers 0409, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  5. Chowdhury, K, 2005. "What´s Happening to Per Capita Gdp in the ASEAN Countries?. An Analysis of Convergence, 1960-2001," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 5(3).
  6. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  7. Liew, Venus Khim-Sen & Ahmad, Yusuf, 2006. "Income convergence? Evidence of non-linearity in the East Asian Economies: A comment," MPRA Paper 519, University Library of Munich, Germany.
  8. Chen, Jian & Fleisher, Belton M., 1996. "Regional Income Inequality and Economic Growth in China," Journal of Comparative Economics, Elsevier, vol. 22(2), pages 141-164, April.
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