Convergence and Cross-Section Dynamics: Evidence from the Data

Abstract

This paper analyzes income convergence between groups of countries relative to the world-wide development. The alternative to conventional convergence tests introduced here provides more transparent and intuitively more reasonable results. Using a combination of cross-section data and time-series data for the period 1970-1990, we find evidence for a separation in levels of income (measured as real per capita GDP) between groups of countries. Africa seems to be trapped in a situation with a low level of real per capita GDP, whereas the OECD countries find themselves in a position with a relatively high level of real per capita GDP. Latin America diverges and Asia converges relatively to the world-wide development. Simple OLS results are consistent with these findings. Extending the analysis to individual countries confirms Quah's results on the immobility over time of individual countries with respect to the ability to converge to the world average level of real per capita GDP. In our sample, only Singapore moved from the group of low income countries to the group of high income countries. From the estimation results we expect Malaysia to catch up with countries like Korea and Singapore.