Working Paper: CEPR ID: DP691
Authors: Daniel Cohen
Abstract: I argue in this paper that the `speed of convergence' estimated in recent works on `convergence' does not capture `actual' convergence towards a steady state, but rather conditional dynamics towards a moving target. Although this conditional convergence can be taken to imply that there are decreasing returns to such storable assets as physical and human capital, they cannot be taken to rule out unbounded growth (since human capital could well be indefinitely growing). I offer a test of the `convergence hypothesis' based on the analysis of a two-dimensional system and find that it cannot be accepted.
Keywords: growth; convergence
JEL Codes: E22; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| estimated speed of convergence towards a steady state (C62) | does not accurately capture actual convergence (F62) |
| conditional dynamics towards a moving target (C69) | mislead interpretations of growth rates across economies (F62) |
| decreasing returns to physical and human capital (J24) | does not imply the existence of a steady state (C62) |
| human capital can grow indefinitely (J24) | does not imply the existence of a steady state (C62) |
| tests of the convergence hypothesis (C12) | amount to testing for decreasing returns (C51) |
| two-dimensional system analysis (P50) | leads to rejection of the hypothesis of convergence (C12) |
| level of development (O11) | dependency of school enrollment (I21) |
| school enrollment (I21) | is an endogenous function of the country's development stage (O11) |