Abstract
Researchers of hysteresis outline the long-term change in growth paths of economies. It entails the post-crisis change in growth paths of economies through the change of macroeconomic indicators, such as employment and output. Recessionary shocks might have positive or negative impacts on economies’ growth paths which in turn affects convergence and divergence in economies. In this research, hysteresis is explored in convergence across 110 countries induced by the global financial recession of 2007. Findings suggest that as a post-crisis change, hysteresis in convergence is in place. The difference arises in adaptability of economies to changes. The reason for convergence of poor and rich countries might be more intensive foreign investments in developing nations. These investments have a positive influence on economic performance in developing countries by increasing employment rates.
Highlights
Economic growth convergence is both a well-explored and highly debatable subject
As we have mentioned before, in the 1970-ies, it is possible that the oil crisis and collapse of Britton woods influenced convergence of countries with a common growth path
The research aims at the evaluation of convergence dynamics and the search for hysteresis in convergence and divergence after the crisis of 2007
Summary
Economic growth convergence is both a well-explored and highly debatable subject. Researchers went through different stages of subject development and clarified many doubts. The impact of the crisis of 2007/2008 on convergence still needs attention. It has been more than a decade after the crisis and many economies have been still in a struggle to get back to pre-crisis output levels. It is known that the economic crisis causes non-linearity (hysteresis) in behaviours of economies. The question whether it reflects non-linearity in aggregate convergence processes has been still waiting for further investigations. This study will show evident nonlinear behaviours of economies induced by the global crisis of 2007 and changes in dynamics of convergence across the world. The crisis will help to analyse behaviours of economies and their influence on convergence dynamics
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