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A Test of the Convergence Hypothesis by Rates of Return to Capital: Evidence from OECD Countries

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  • Hak K. Pyo

    (Seoul National University and University of Tokyo.)

  • Kwanghee Nam

    (Korea Economic Research Institute)

Abstract

While the convergence hypothesis implies that poor countries or regions tend to grow faster than rich ones, it can be reformulated such that poor countries or regions tend to have higher rates of return on their capital than rich ones but their rates of return would ultimately decline and converge to the level of rich ones. We test this reformulated convergence hypothesis by estimating Harberger's before-tax gross rates of return on total capital from the data of OECD countries. The major finding is that the convergence hypothesis is accepted: there could be an outlier during a certain period but the rate of return on its capital eventually declines and converges to the steady-state level.

Suggested Citation

  • Hak K. Pyo & Kwanghee Nam, 1999. "A Test of the Convergence Hypothesis by Rates of Return to Capital: Evidence from OECD Countries," CIRJE F-Series CIRJE-F-51, CIRJE, Faculty of Economics, University of Tokyo.
  • Handle: RePEc:tky:fseres:99cf51
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    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/99/cf51/contents.htm
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
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    3. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    4. Carroll, Christopher D. & Weil, David N., 1994. "Saving and growth: a reinterpretation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 133-192, June.
    5. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    6. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
    7. Alwyn Young, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 641-680.
    8. Uzawa, H, 1969. "Time Preference and the Penrose Effect in a Two-Class Model of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 77(4), pages 628-652, Part II, .
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    Cited by:

    1. Keiko Ito & Kyoji Fukao, 2005. "Physical and Human Capital Deepening and New Trade Patterns in Japan," NBER Chapters,in: International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14, pages 7-52 National Bureau of Economic Research, Inc.
    2. ., 2013. "Japan's Alternating Phases of Growth and Future Outlook," Chapters,in: World Economic Performance, chapter 6, pages 136-161 Edward Elgar Publishing.

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