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Conditional convergence revisited : taking Solow very seriously

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  • Karl Whelan
  • Kieran McQuinn

Abstract

Output per worker can be expressed as a function of technological efficiency and of the capital-output ratio. Because technology is exogenous in the Solow model, all of the endogenous convergence dynamics take place through the adjustment of the capital-output ratio. This paper uses the empirical behaviour of the capital-output ratio to estimate the speed of conditional convergence of economies towards their steady-state paths. We find that the conditional convergence speed is about seven percent per year. This is somewhat faster than predicted by the Solow model and is significantly higher than reported in most previous studies based on output per worker regressions. We show that, once there are stochastic shocks to technology, standard panel econometric techniques produce downward-biased estimates of convergence speeds, while our approach does not.

Suggested Citation

  • Karl Whelan & Kieran McQuinn, 2006. "Conditional convergence revisited : taking Solow very seriously," Open Access publications 10197/242, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:oapubs:10197/242
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    File URL: http://hdl.handle.net/10197/242
    File Function: Open Access version, 2006
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    Cited by:

    1. Kieran McQuinn & Karl Whelan, 2007. "Solow ( 1956 ) as a model of cross-country growth dynamics," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 23(1), pages 45-62, Spring.
    2. Marcel Schroder, 2013. "Should developing countries undervalue their currencies?," Departmental Working Papers 2013-12, The Australian National University, Arndt-Corden Department of Economics.
    3. Museru, Malimu & Toerien, Francois & Gossel, Sean, 2014. "The Impact of Aid and Public Investment Volatility on Economic Growth in Sub-Saharan Africa," World Development, Elsevier, vol. 57(C), pages 138-147.
    4. Kieran McQuinn & Karl Whelan, 2008. "Prospects for Growth in the Euro Area," CESifo Economic Studies, CESifo, vol. 54(4), pages 642-680, December.
    5. Schröder, Marcel, 2013. "Should developing countries undervalue their currencies?," Journal of Development Economics, Elsevier, vol. 105(C), pages 140-151.
    6. Socol Cristian & Socol Aura Gabriela & Marinas Marius-Corneliu, 2008. "The Analysis Of Equity-Efficiency Trade-Off In The European Union Economy," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 2(1), pages 442-448, May.

    More about this item

    Keywords

    Solow growth model; Convergence (Economics); Capital productivity;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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