Evaluating the conditional convergence hypothesis in the post-1989 globalization period

Abstract

ABSTRACT This paper finds that conditional convergence in per capita incomes, as a robust empirical regularity across countries, is absent in the post-1989 globalization era. The results show that conditional convergence is subject to some initial, returns-adjusted level of education, implying that it has become more challenging for developing countries to industrialize via technology catch-up from abroad. The lack of conditional convergence, together with the increasing importance of education, complements another strand of literature that provides evidence of growth-reducing structural change, a growing technology gap due to the skill-intensive nature of manufacturing, and their link to the premature deindustrialization phenomenon observed in many developing countries since 1990. To draw an explicit link between the lack of conditional convergence in the post-1989 period and the literature on premature deindustrialization, the analysis augments a Barro-type regression with the employment shares of manufacturing, agriculture and services. The results show that raising the employment share of manufacturing relative to agriculture and, especially, services, is the most effective way to induce conditional convergence and generate faster growth in per capita income. One implication of the lack of conditional convergence is that the growth accelerations observed in many developing economies since the late-1990s may not be sustainable.