A new look at global growth convergence and divergence
Michele Battisti, Gianfranco di Vaio, Joseph Zeira 09 January 2014
A key question in economics is whether poor countries will automatically close the income gap with rich countries. However, different empirical methods yield different answers – growth regressions suggest convergence, whereas tests of distribution dynamics suggest divergence. This column discusses recent research that reconciles these two strands of the literature. It extends the benchmark growth regression model to include a parameter that determines the share of new technologies a country can adopt each year. The result is that, although each country converges to a growth path, the growth paths themselves may diverge.
The phenomenon of modern economic growth is fairly new. It started less than two centuries ago, but it changed our lives significantly. One of the main changes is that income gaps between countries have greatly increased. One of the main questions that concern economists who study economic growth is whether these gaps are still growing, or countries are instead converging to the same level of income. This question is empirical, but it has important theoretical implications, as our main growth theories predict convergence between countries.
Development Frontiers of economic research
growth, convergence, technology transfer, divergence