On convergence accounting

Abstract

This paper analyses a simple and direct way to break down the convergence for labour productivity into contributions from different sources by running separate convergence regressions of the contribution to growth of each factor on the initial labour productivity level. This is because the total convergence parameter is simply the sum of parameters of convergence in such separate regressions. An application for OECD countries over the period 1965–90 shows that TFP growth is the main factor in explaining OECD labour productivity convergence. Physical investment was an important source of convergence, but only until 1980. Finally human capital accumulation had little effect throughout the period, with a minor positive effect in the last years.