DP1350 Convergence? Inferences from Theoretical Models

Author(s): Oded Galor
Publication Date: February 1996
Keyword(s): Club Convergence, Conditional Convergence, Growth, Income Distribution, Multiple Steady-state, Overlapping-generations
JEL(s): O40
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1350

This essay suggests that the convergence controversy may reflect, in part, differences in perception regarding the viable set of competing testable hypotheses generated by existing growth theories. It argues that in contrast to the prevailing wisdom, the traditional neo-classical growth paradigm generates the club convergence hypothesis as well as the conditional convergence hypothesis. Furthermore, the inclusion of empirically significant variables such as human capital, income distribution, and fertility in conventional growth models, along with capital market imperfections, externalities, and non-convexities, strengthens the viability of club convergence as a competing hypothesis with conditional convergence.