economic growth - empirics convergence Flashcards
what is β convergence?
beta convergence is the tendency of poor economies having higher growth rates of real GDP per capita than rich ones
what are the two types of convergence?
β-convergence(beta) and σ-convergence (sigma)
what is σ-convergence
sigma convergence is the tendendency of decreasing dispersion in the levels of real GDP per capita between countries
why is β-convergence(beta) the nessecart condition for the existence of σ-convergence (sigma)
it is impossible to have the two economies to be closer together change in t periods in the future without having the initially poor economy grow faster in the period between t and change in t.
what are the two types of beta convergence?
absolute and conditional beta convergence
what is absolute beta convergence?
income convergence occurs without conditioning on specific characteristics of the countries ( ie poor countries have to grow faster than rich countries independently of any other characteristics) - unconditional
what is conditional beta convergence>
countries converge to their own steady states, which are determined by many structural parameters ( savings rate, population growth rate, depreciation rate, rate of technological progress etc)
what does conditional and absolute convergence presume about the steady states?
absolute convergence presumes the steady state is the same for all countries whereas the conditional convergence allows for multiple steady states
what does conditional and absolute convergence presume about the parameters?
absolute convergence assumes all parameters are the same whereas the conditional convergence controls for structural parameters, that systematically vary across countries such as s and n
what is club convergence?
when countries with similiar characteristics converge to some common income level
what is the regression which can be used to estimate the speed of absolute beta convergence?
g_y(t+change in t) = b_0 +b_1*y_t + e
where g_y(t+change in t) is the growth rate change in t periods ahead from t, b_0 is the intercept of the regression and b1 the slope and a measure of how fast a country with initial level of output y_t will grow
what does convergence imply about the relationship between y_t and g_y(t+change in t)
there is a negative relationship between current output and the growth rate so the slope is negative
what are the two important critiques of baumol 1986?
sample selection - he chose countries that were ex post rich, data more likely to be available for ex post successful country, any difference in initial conditions will yield convergence, countries that were not rich 100 years ago are typically in the sample only if they grew rapidly over the next 100 years
measurement errors in initial income creates bias towards convergence - when income in 1870 is overstatesm growth is understated by an equal amount
what was baumols 1986 empiracle study of convergence and what was his results?
he analysed data for 16 countries for which long historical data were available, he found a negative relationship and so indicated that convergence was occuring
what did delong 1998 conclud about baumois 1986 when he expanded the sample size?
after he used an expanded sample, half of baumols convergence was eliminated.
