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Is the speed of convergence constant?

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  • Jordan Rappaport

Abstract

Empirical attempts to measure the speed of convergence -- the rate at which a country's per capita income approaches its steady state relative to its distance from its steady state -- have started from the assumption that it is constant. In contrast, neoclassical models of capital accumulation usually predict that the speed of convergence decreases as income approaches its steady state. Estimating a flexible functional form which allows the speed of convergence to vary suggests that the speed of convergence actually increases as income approaches its steady state. An increasing speed of convergence calls into question structural interpretations of coefficients on conditioning variables in cross-sectional growth regressions. Instead, excluding initial income from cross-sectional growth regressions allows coefficients on exogenous variables to be interpreted as measuring changes in underlying structural relationships.

Suggested Citation

  • Jordan Rappaport, 2000. "Is the speed of convergence constant?," Research Working Paper RWP 00-10, Federal Reserve Bank of Kansas City.
  • Handle: RePEc:fip:fedkrw:rwp00-10
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    References listed on IDEAS

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    Cited by:

    1. Jean-Louis ARCAND & Béatrice D'HOMBRES, 2002. "Explaining the Negative Coefficient Associated with Human Capital in Augmented Solow Growth Regressions," Working Papers 200227, CERDI.
    2. Young, Andrew T. & Higgins, Matthew J. & Levy, Daniel, 2013. "Heterogeneous convergence," Economics Letters, Elsevier, vol. 120(2), pages 238-241.
    3. Durlauf, Steven N. & Kourtellos, Andros & Minkin, Artur, 2001. "The local Solow growth model," European Economic Review, Elsevier, vol. 45(4-6), pages 928-940, May.
    4. Jordan Rappaport & Jeffrey D. Sachs, 2001. "The U.S. as a coastal nation," Research Working Paper RWP 01-11, Federal Reserve Bank of Kansas City.
    5. Jordan Rappaport, 2000. "How does openness to capital flows affect growth?," Research Working Paper RWP 00-11, Federal Reserve Bank of Kansas City.

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