Working Paper: CEPR ID: DP1350
Authors: Oded Galor
Abstract: This essay suggests that the convergence controversy may reflect, in part, differences in perception regarding the viable set of competing testable hypotheses generated by existing growth theories. It argues that in contrast to the prevailing wisdom, the traditional neo-classical growth paradigm generates the club convergence hypothesis as well as the conditional convergence hypothesis. Furthermore, the inclusion of empirically significant variables such as human capital, income distribution, and fertility in conventional growth models, along with capital market imperfections, externalities, and non-convexities, strengthens the viability of club convergence as a competing hypothesis with conditional convergence.
Keywords: conditional convergence; club convergence; income distribution; multiple steady-state growth; overlapping generations
JEL Codes: 040
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| traditional neoclassical growth model (O41) | conditional convergence hypothesis (F62) |
| traditional neoclassical growth model (O41) | club convergence hypothesis (F62) |
| heterogeneity among individuals (D29) | multiple steady-state equilibria (D50) |
| additional empirically significant variables (C39) | multiple steady-state equilibria (D50) |
| countries with similar structural characteristics (O57) | club convergence hypothesis (F62) |
| diminishing marginal productivity of capital (D24) | club convergence hypothesis (F62) |
| human capital formation (J24) | club convergence hypothesis (F62) |
| market imperfections (D43) | club convergence hypothesis (F62) |