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Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics

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  • Francesco Caselli
  • Gerardo Esquivel
  • Fernando Lefort

Abstract

There are two sources of inconsistency in existing cross-country empirical work on growth: correlated individual effects and endogenous explanatory variables. We estimate a variety of cross-country growth regressions using a generalized method of moments estimator that eliminates both problems. In one application, we find that per capita incomes converge to their steady-state levels at a rate of approximately 10% per year. This result stands in sharp contrast to the current consensus, which places the convergence rate at 2%. We discuss the theoretical implications of this finding. In another application, we perform a test of the Solow model. Again, contrary to prior results, we reject both the standard and the augmented version of the model.

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  • Francesco Caselli & Gerardo Esquivel & Fernando Lefort, 1997. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Working Papers Central Bank of Chile 03, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:03
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