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The Elusive Empirical Shadow of Growth Convergence

  • Peter C.B. Phillips


    (Yale University, Cowles Foundation)

  • Donggyu Sul


    (University of Auckland, Faculty of Business & Economics, Department of Economics)

Two groups of applied econometricians have figured prominently in empirical studies of growth convergence. In terms of a popular caricature, one group believes it has found a black hat of convergence (evidence for growth convergence) in the dark room of economic growth, even though the hat may not exist (the task may be futile). A second group believes it has found a black coat of divergence (evidence against growth convergence) even though this object also may not exist (empirical reality, including the nature of growth divergence, is ever more complex than the models used to characterize it). The present paper seeks to light a candle to see whether there is a hat, a coat or another object of identifiable clothing in the room of regional and multi-country economic growth. After our examination, we find that the candle power of applied econometrics is too low to clearly distinguish a black hat in the huge dark room of economic growth. However, in our theory model, we find an important new role for heterogeneity over time and across economies in the transitional dynamics of economic growth; and, in our empirical work, these transitional dynamics reveal an elusive shadow of the conditional convergence hat in both US regional and inter-country OECD growth patterns.

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm342.

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Date of creation: 28 Jul 2004
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Handle: RePEc:ysm:somwrk:ysm342
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