A Test of the Convergence Hypothesis by Rates of Return to Capital: Evidence from OECD Countries
AbstractWhile the convergence hypothesis implies that poor countries or regions tend to grow faster than rich ones, it can be reformulated such that poor countries or regions tend to have higher rates of return on their capital than rich ones but their rates of return would ultimately decline and converge to the level of rich ones. We test this reformulated convergence hypothesis by estimating Harberger's before-tax gross rates of return on total capital from the data of OECD countries. The major finding is that the convergence hypothesis is accepted: there could be an outlier during a certain period but the rate of return on its capital eventually declines and converges to the steady-state level.
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Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-51.
Length: 30 pages
Date of creation: Jun 1999
Date of revision:
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This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-07-28 (All new papers)
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