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The pitfalls of convergence analysis: is the income gap really widening?

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  • Matthew Cole
  • Eric Neumayer

Abstract

A number of studies have tested whether, globally, per capita incomes are converging over time. To date, the majority of studies find no evidence of absolute convergence, but many find evidence of conditional convergence, i.e. convergence having controlled for differences in technological and behavioural parameters. The lack of evidence of absolute convergence has led to claims that global income inequality is deteriorating. This is believed to be untrue. Most convergence studies are aimed at proving or disproving the neoclassical growth model and hence take the 'country' as the unit of measurement. However, if inferences are being made about world income distribution the focus should be on 'people' rather than 'countries' to prevent China and Luxembourg, for example, receiving equal weighting in the analysis. The β-convergence method and two different measures of per capita income are used and it is shown that there is indeed evidence of income divergence between countries. However, crucially, convincing evidence is found of income convergence if the regressions are weighted by population. Thus, it is found that poor peoples' incomes are growing faster than rich peoples' incomes, suggesting that global income inequality is in fact improving.

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  • Matthew Cole & Eric Neumayer, 2003. "The pitfalls of convergence analysis: is the income gap really widening?," Applied Economics Letters, Taylor & Francis Journals, vol. 10(6), pages 355-357.
  • Handle: RePEc:taf:apeclt:v:10:y:2003:i:6:p:355-357
    DOI: 10.1080/1350485032000072361
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    References listed on IDEAS

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    1. Branko Milanovic, 2002. "True World Income Distribution, 1988 and 1993: First Calculation Based on Household Surveys Alone," Economic Journal, Royal Economic Society, vol. 112(476), pages 51-92, January.
    2. Sala-i-Martin, Xavier X, 1996. "The Classical Approach to Convergence Analysis," Economic Journal, Royal Economic Society, vol. 106(437), pages 1019-1036, July.
    3. Hobijn, Bart & Franses, Philip Hans, 2001. "Are living standards converging?," Structural Change and Economic Dynamics, Elsevier, vol. 12(2), pages 171-200, July.
    4. Lant Pritchett, 1997. "Divergence, Big Time," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 3-17, Summer.
    5. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June.
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    Cited by:

    1. George Petrakos & Panagiotis Artelaris, 2009. "European Regional Convergence Revisited: A Weighted Least Squares Approach," Growth and Change, Wiley Blackwell, vol. 40(2), pages 314-331, June.
    2. Mendez, Carlos, 2019. "Regional Efficiency Dispersion, Convergence, and Efficiency Clusters: Evidence from the Provinces of Indonesia 1990-2010," MPRA Paper 95972, University Library of Munich, Germany.
    3. Kenichi SHIMAMOTO, 2017. "Examining The Existence Of Co2 Emission Per Capita Convergence In East Asia," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(2), pages 11-28, December.
    4. Srinivas, Goli, 2014. "Demographic convergence and its linkage with health inequalities in India," MPRA Paper 79823, University Library of Munich, Germany, revised 05 Dec 2014.
    5. Gyawali, Buddhi Raj & Fraser, Rory & Banerjee, Ban & Bukenya, James O., 2009. "Income Convergence and Growth in Alabama: Evidence from Sub-county Level Data," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46713, Southern Agricultural Economics Association.
    6. Carlos Mendez, 2020. "Regional efficiency convergence and efficiency clusters," Asia-Pacific Journal of Regional Science, Springer, vol. 4(2), pages 391-411, June.
    7. Srinivas Goli & Moradhvaj & Swastika Chakravorty & Anu Rammohan, 2019. "World health status 1950-2015: Converging or diverging," PLOS ONE, Public Library of Science, vol. 14(3), pages 1-20, March.
    8. Panagiotis Artelaris & Paschalis A. Arvanitidis & George Petrakos, 2011. "Convergence patterns in the world economy: exploring the nonlinearity hypothesis," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 38(3), pages 236-252, August.

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