Abstract
Increasing economic integration and global synchronization can be key for countries aiming to catch up in GDP per capita terms. Little attention has hitherto been placed in synchronization as determinant of convergence. In this paper we estimate the effect of economic globalization and synchronization on income convergence for a sample of 89 developed and developing countries in the period 1970-2015. We use a dynamic factor model and panel data techniques to undertake the objectives of the paper. We show that synchronized countries (those correlated with the factor) exhibit a higher response on GDP per capita growth with variations on the global business cycle. This implies that synchronization improves growth for that group in global expansionary phases, but also implies risks during global recessions. On the contrary, the effect on growth of an economic globalization index is less relevant for synchronized countries than for asynchronized countries. The latter result implies that asynchronized countries can benefit more increasing their levels of economic globalization.
Highlights
In the last decade the economic convergence literature has deepened on the debate of why some countries grow faster than others
The catch-up effect from the seminal paper of [4] is hitherto widely accepted: countries departing from relatively low levels of GDP per capita tend to grow faster than richer countries, which will eventually make the former converge in economic terms
Focusing on the economic convergence literature, the hypothesis of beta convergence has been refined from the seminal papers which departed from the idea of closing gaps
Summary
In the last decade the economic convergence literature has deepened on the debate of why some countries grow faster than others. During this time, the causes of the differences in economic development across countries have been quite diverse, ranging from the commonly accepted view of the institutional factors explained in [1] and [2] to others such as differences in investment levels in human capital as in [3], the rate of innovation or the technological potential. Conditional convergence literature has expanded the search of determinants of convergence, identifying potential variables influencing the catching-up process. Focusing on the economic convergence literature, the hypothesis of beta convergence has been refined from the seminal papers which departed from the idea of closing gaps
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