Globalization, institutions, and income convergence

Abstract

The income convergence literature suggests that poor countries or regions can catch up to rich ones conditional on sharing certain characteristics with rich countries or regions. Good institutions such as strong property rights and rule of law are key among those characteristics. Globalization provides opportunities for agents in poor economies to learn about and experi-ment with institutional innovations across regions. We estimate the relationship between glob-alization and cross-country income convergence using a panel of up to 184 countries covering 1970 to 2009. We employ the KOF index of globalization and control for measures of political and economic institutional quality. A standard deviation increase in the KOF index is associ-ated with a country closing the gap between its income per capita level and that of the richest country by an additional 13.6% annually.