Convergence

Question 1

What is β convergence?

Answer 1

Poor countries grow faster than rich countries, such that they eventually converge in terms of per capita income.

Question 2

How do we estimate the speed of β convergence?

Answer 2

Use output growth regression:

g_yi = (δ+n) (1-α) log(y*) - (δ+n) (1-α) log(y_i) + ε_i

Intercept = (δ+n) (1-α) log(y\*)
Slope = - (δ+n) (1-α) = growth of GDP / GDP per capital = β

So, g_y = -βy, where β is the speed of convergence, a negative value indicating that the lower the growth rate, the higher the per capita income.