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The Poor Stay Poor: Non-Convergence Across Countries and Regions


  • Canova, Fabio
  • Marcet, Albert


We study the issue of income convergence across countries and regions with a Bayesian model which allows us to use information in an efficient and flexible way. We argue that the very slow convergence rates to a common level of per-capita income found, for example, by Barro and Sala-i-Martin, is due to a 'fixed effect bias' that their cross-sectional analysis introduces in the results. Our approach permits the estimation of different convergence rates to different steady states for each cross-sectional unit. When this diversity is allowed, we find that convergence of each unit to (its own) steady-state income level is much faster than previously estimated, but that cross-sectional differences persist: inequalities will only be reduced by a small amount by the passage of time. The cross-country distribution of the steady state is largely explained by the cross-sectional distribution of initial conditions.

Suggested Citation

  • Canova, Fabio & Marcet, Albert, 1995. "The Poor Stay Poor: Non-Convergence Across Countries and Regions," CEPR Discussion Papers 1265, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1265

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    References listed on IDEAS

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    More about this item


    Convergence; Income Inequalities; Panel Data; Persistence; Prior Distribution;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • 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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