Citation

Discussion Paper Details

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Title: Galton's Fallacy and Tests of the Convergence Hypothesis

Author(s): Danny Quah

Publication Date: July 1993

Keyword(s): Convergence, Cross-country growth, Galton's Fallacy, Regression Towards the Mean, Stochastic Kernel and Transition Matrix

Programme Area(s): International Macroeconomics

Abstract: Recent tests for the convergence hypothesis derive from regressing average growth rates on initial levels: a negative initial level coefficient is interpreted as convergence. These tests turn out to be plagued by Francis Galton's classical fallacy of regression towards the mean. Using a dynamic version of Galton's fallacy, I establish that coefficients of arbitrary signs in such regressions are consistent with an unchanging cross-section distribution of incomes. Alternative, more direct empirics used here show a tendency for divergence, rather than convergence, of cross-country incomes.

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Bibliographic Reference

Quah, D. 1993. 'Galton's Fallacy and Tests of the Convergence Hypothesis'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=820