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An Empirical Analysis of Convergence Hypothesis

  • Eatzaz Ahmad

    (Department of Economics, Quaid-i-Azam University, Islamabad.)

  • Amber Naz

    (Department of Economics, Quaid-i-Azam University, Islamabad.)

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    A useful contribution of wide ranging debate in the growth literature is that it has put forward a number of testable hypotheses. One of such hypotheses is known as the convergence hypothesis whereby it is postulated that in the long run developing countries would catch-up with the developed countries in terms of per capita income. Although the convergence hypothesis has gained researchers’ interest in recent times, the basic proposition was laid down in the neo-classical growth model of Solow (1956) and Swan (1956). Traditionally Solow-Swan model has been regarded as a theoretically consistent answer to Harrods’s (1939) twin problems of discrepancy between the warranted and natural rates of growth and instability in the growth process. Although Solow- Swan model is designed to study growth process within a single country, the concept of conditional convergence is far from being alien to the model; it in fact forms the core of argument in the attack on Harrod-Domar model [Harrod (1939) and Domar (1946)]. The model predicts that under perfect competition and in the absence of market distortions, an economy converges to equilibrium capital-labour ratio to yield steady state growth rate that is equal to the natural growth rate and is dynamically stable.

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    File URL: http://www.pide.org.pk/pdf/PDR/2000/Volume4/729-740.pdf
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    Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

    Volume (Year): 39 (2000)
    Issue (Month): 4 ()
    Pages: 729-740

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    Handle: RePEc:pid:journl:v:39:y:2000:i:4:p:729-740
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    1. Jones, Charles I, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 495-525, May.
    2. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
    3. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
    4. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
    5. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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