The convergence hypothesis has generated a huge empirical literature, and in Discussion Paper No. 1040, Research Fellow Danny Quah critically reviews some of the earlier key findings, clarifies their implications, and relates them to more recent results. Particular attention is devoted to interpreting convergence empirics. The paper argues that relating them to growth theories, as is usually done, gives but one interpretation to convergence dynamics; it does not exhaust their importance. Instead, if convergence is related to the dynamics of income distributions, it broadens the issues on which such empirics can shed light, connecting with policy concerns on persistent or growing inequality, regional core-periphery stagnation, and tendencies for ongoing capital flows across developed and developing countries.

The main findings of the paper are: a) the much heralded uniform 2 per cent rate of convergence could arise for reasons unrelated to the dynamics of economic growth; b) usual empirical analyses – cross-section (conditional) convergence regressions, time series modelling, panel data analysis – can be misleading for understanding convergence; a model of polarisation in economic growth clarifies those difficulties; c) the data, more revealingly modelled, show persistence and immobility across countries: some evidence supports Baumol's idea of `convergence clubs', while other evidence shows the poor getting poorer, and the rich richer, with the middle class vanishing; and d) convergence, unambiguous up to sampling error, is observed across US states.

Empirics for Economic Growth and Convergence
Danny T Quah

Discussion Paper No. 1140, March 1995 (IM)