Working Paper: CEPR ID: DP2465
Authors: Angel de la Fuente
Abstract: This paper surveys the recent literature on convergence across countries and regions. We discuss the main convergence and divergence mechanisms identified in the literature and develop a simple model that illustrates their implications for income dynamics. We then review the existing empirical evidence and discuss its theoretical implications. Early optimism concerning the ability of a human capital-augmented neoclassical model to explain productivity differences across economies has been questioned on the basis of more recent contributions that make use of panel data techniques and obtain theoretically implausible results. Some recent research in this area tries to reconcile these findings with sensible theoretical models by exploring the role of alternative convergence mechanisms and the possible shortcomings of panel data techniques for convergence analysis.
Keywords: convergence; growth
JEL Codes: O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| initial income levels (D31) | subsequent growth rates (O41) |
| decreasing returns to capital (E22) | faster growth in poorer countries (O57) |
| technological diffusion (O33) | convergence (O47) |
| structural changes (L16) | convergence (O47) |
| resource reallocation (Q20) | structural changes (L16) |
| initial income levels (D31) | divergence under increasing returns to capital (D29) |
| human capital and investment rates (E22) | convergence (O47) |