Cross-country Convergence Research Articles

Knowledge Spillovers, Innovation and Growth

Cohen and Levinthal (1989) introduced the notion of absorptive capacity and demonstrated that knowledge spillovers can induce complementarities in R&D efforts. We show that this idea has rich implications when analysing important aspects of the growth process such as cross-country convergence and divergence, the international co-ordination of climate change policies, and the role of openness in the production of ideas. We also show that the notion of absorptive capacity sets an agenda for new empirical and theoretical analyses of the role of R&D spillovers in innovation and growth.

Sectoral productivity trends: convergence islands in oceans of non-convergence

Growth theory argues that thresholds can lead to multiple growth regimes, which are reflected in heterogeneous patterns of cross-country convergence and divergence. We study sectoral convergence patterns by using a new longitudinal sectoral database for 65 developed and developing countries. We employ an econometric method, quantile smoothing splines, which explicitly allows for identification of parameter heterogeneity both with regard to initial conditions (X-heterogeneity) and growth performances (Y-heterogeneity). Findings suggest that convergence is rather the exception than the rule.

How Global Is Globalization?

We examine a balanced panel of globalization indices for 129 countries over the years 1991- 2010. We report evidence of cross-country sigma convergence in the overall globalization index. Sigma convergence also holds for each of the economic, political, and social globalization indices, as well as each sub-index within these indices. However, the evidence for stochastic convergence, based on panel unit root tests, is only strong for the political globalization index. Regarding the economic and social dimensions of globalization, respectively, we find evidence for stochastic convergence only in the flows and cultural proximity sub-indices. For the OECD subsample, evidence supports stochastic convergence for the overall, economic and political globalization indices. Evidence to support regional convergence among the non-OECD nations on various globalization dimensions is much more limited. Our findings indicate that globalization convergence is truly global only on the political dimension.

The management function of entrepreneurs and countries’ productivity growth

This article examines the determinants of the equilibrium number of entrepreneurs and the level of productivity in economies where individuals make occupational choices between being self-employed or working as an employee. The results of the theoretical model explain some observed empirical regularities, such as the negative association between productivity and self-employment rates in cross-country data. The article also derives and empirically tests an unexplored relationship between entrepreneurship and economic growth, in the form of a positive association between productivity growth in t and the proportion of the self-employed in t − 1, providing a new perspective on cross-country productivity convergence over time.

Cross-country convergence in energy and electricity consumption, 1971–2007

Patterns of convergence in per-capita consumption of energy and electricity are studied from a large cross-country data set covering the period 1971–2007. Along with unconditional β-convergence, we use σ-convergence criterion and a simple model of conditional β-convergence. The exploration is done for the entire period and several subperiods. In addition to OLS for the global sample, β-convergence is studied for top and bottom deciles through quantile regressions. Ten points are noted. First, global convergence in energy consumption is generally weak. Second, convergence in electricity usage is strong in most cases. Third, despite some variations, the patterns are fairly similar across the four periods. Fourth, energy convergence in both top and bottom deciles is generally weak, but there are some variations. Fifth, for electricity, convergence is noted in the top, but not in the bottom, decile. Sixth, unconditional β-convergence patterns are consistent with σ-convergence scenarios. Seventh, as is usually noted, convergence is more marked in conditional β-format than in the unconditional models. However, interpretation of conditional convergence in usage of energy or electricity is somewhat ambiguous. Eighth, weak convergence in energy usage might reflect a modestly larger increase in low-usage contexts relative to high-usage cases, and might not be of concern from the sustainability perspective. Ninth, strong convergence in electricity usage is associated with a much higher rate of global increase than the weakly-convergent energy usage. Last, the difference in convergence patterns for energy- and electricity-usage seems to merit further exploration.

Convergence Speeds and Transitional Dynamics in Non-Scale Growth Models

Neoclassical and endogenous growth models yield strikingly different predictions regarding the determinants of long-run growth rates and their implications for long-run cross-country convergence characteristics. On the one hand, Mankiw, Romer, and Weil (1992) and Barro and Salai-Martin (1995) have shown that countries converge to identical growth rates, but to distinct income levels. Since these empirical findings run counter to the predictions of endogenous growth models, they have cast doubt on the relevance of such models to explain long-run cross-country convergence and transition paths. On the other hand, while the empirical evidence confirms the implications of the traditional neoclassical in terms of cross-country convergence, calibrations show that the neoclassical model’s implied convergence speed of about 7 percent, greatly exceeds the empirical estimates of approximately 2 percent. This excessive speed of convergence is also accompanied by implausibly high rates of return (in the standard model) or by implausible rates of investment (in models with human capital). In addition, Bernard and Jones (1996a) maintain that the neoclassical convergence approach overemphasizes capital accumulation at the expense of technological change. They document that, at least since the 1970s, there exists little evidence for cross-country convergence of manufacturing technologies within the OECD. In this paper we seek to reconcile these empirical findings by using a two-sector model of capital accumulation that incorporates endogenous technological change (knowledge). To do so, we examine the transition dynamics and convergence characteristics of a new class of non-scale growth models. In many respects these models are a hybrid of endogenous and neoclassical models, and indeed the traditional Solow-Swan model is a special example. Technology is endogenous as in Romer (1990), and emerges as the outcome of agents’ optimizing behavior, while the dynamic These analyses controlled for parametric differences across countries such as savings rates. The introduction of adjustment costs can slow the speed of convergence, while factor mobility increases it, see King and Rebelo (1993), Ortigueira and Santos (1997), and Barro and Sala-i-Martin (1995). Non-scale refers to the characteristic that variations in the size or scale of the economy do not permanently alter its long-run equilibrium growth rate. For example, RD see Jones (1995b) characteristics are similar to those of the neoclassical model. But in contrast to the latter, as our calibration exercises highlight, the two-sector non-scale model generates remarkably plausible convergence speeds, without having to introduce adjustment costs as in Ortigueira and Santos (1997).

Real Convergence and European Integration: What Factors Make the Difference in Growth at Regional Level?

This paper examines income convergence across Europe during the period 1995-2007 where the last enlargement of the EU and the process of economic integration was in active progress. It is generally accepted that the enlargement of the EU has been followed by the convergence of late comers toward the European average. The author focuses on only the cross-county convergence, but also within-country convergence. He concluded that the remarkable cross-country convergence has tended toward within-country divergence, particularly for Central and Eastern European Countries during the enlargement period. Economic weights of the respective regions in national economies seem to be critical in explaining within-country divergence. High income regions, mostly capital cities, in CEECs are characterized particularly by higher growth rates. It is highly probable that the economic integration has favored those well-off regions at the expense of regions remote from their capitals. This tentative conclusion provides important policy implications not only for European integration, but also for economic integration in other regions, where countries have been seeking diverse regional trade agreements (RTA). Economic integration is largely recognized as a policy option to boost economic growth through trade and investment channels, but economic benefits are likely to be concentrated in certain favored regions, mostly capital regions or industrial areas which have already been enjoying high income levels. Thus, it will be increasingly necessary to develop a mechanism to channel economic benefits to backward regions for within-country convergence.

Cross-border integration in the European electricity market. Evidence from the pricing behavior of Norwegian and Swiss exporters

This paper examines the electricity market integration process in two European areas based on the pricing behavior of Norwegian and Swiss exporters. The aim is to gain evidence for the period after the adoption of the “Second Legislative Package” (2003). The pricing behavior of Norwegian exporters indicates that the wholesale markets for Denmark and Sweden are highly integrated. Moreover, results are fully compatible with the existence of a very competitive marketplace for electricity. This clearly contrasts with the evidence provided by Swiss exporters. In this last case, analysis revealed differences in pricing-to-market behavior between Italy, France and Germany, which indicates that exporters take advantage of international market segmentation and divergences between market structures. This outcome provides a reasonable explanation as to why price differences between countries cannot be fully attributed to transmission costs, as has been claimed in previous research. We also found cross-country convergence in levels of markups and in pricing-to-market behavior of the Swiss exporters for the first part of the period that was analyzed. The evidence is fully consistent with an initial impulse toward market integration originated by reforms implemented at the beginning of the last decade.

Hunting for Leopards: Long Run Country Income Dynamics in Africa

This paper examines the country-level dynamics of long-run growth in Africa between 1975 and 2005. The authors examine how growth has affected mobility and the distribution of income among countries. They analyze changes in cross-country income structure and convergence, and look for evidence of the formation of country groups or clubs. Using a novel method of breaking up the growth histories of African economies into medium-term spells of growth accelerations and declines, the authors investigate whether a group of African leopards - the regional equivalent of Asia's tigers - is beginning to emerge.

Growth and environmental quality: Testing the double convergence hypothesis

This paper discusses the double convergence hypothesis (DCH) that the uncritical analysis of the so-called environmental Kuznets curve (EKC) implicitly implies. According to the EKC, empirical evidence would support the hypothesis that economic growth, through a deterministic sequence of phases, would produce cross-country convergence in per capita output and, as a by-product, convergence in (the demand for) environmental quality. However, factual analysis seems to reject the general hypothesis of convergence in per capita output, limiting the validity of such an assessment to the case of homogeneous groups of countries. This is why, to test the DCH, the paper focuses on the original group of OECD countries for which the economic convergence turned out to be true. This allows us to verify whether “green” β and σ convergence follows as a consequence of economic convergence. The paper also tests for a more equitable distribution of protection policies among countries. Unlike other studies, which do not make the DCH explicit and have focused on pollutant emissions, this research explicitly tests for the double convergence using, as a proxy for the demand for environmental quality, the territory set aside for protected areas. The results confirm that, for the selected homogenous group of countries, growth has accompanied the demand for environmental quality. This happens both in terms of conditional and stochastic convergence.

Corporate governance quality: Trends and real effects

This paper constructs a composite index of corporate governance quality, documents its evolution during the 1994–2003 period in selected emerging and developed economies, and assesses its impact on growth and productivity of the economy and its corporate sector. Our investigation yields three main findings. First, corporate governance quality in most countries has overall improved, although in varying degrees and with a few notable exceptions. Second, the data exhibit cross-country convergence in corporate governance quality with countries that score poorly initially catching up with countries with high corporate governance scores. Third, the impact of improvements in corporate governance quality on traditional measures of real economic activity—GDP growth, productivity growth, and the ratio of investment to GDP—is positive, significant and quantitatively relevant, and the growth effect is particularly pronounced for industries that are most dependent on external finance.

Croissance et finance

Résumé De nombreuses et récentes contributions ont cherché à expliquer pourquoi des différences de productivité persistaient entre les pays riches et les pays pauvres et pourquoi certains pays s’éloignent de la frontière technologique mondiale, que ce soit en termes de PIB par tête ou de croissance, tandis que d’autres au contraire la rejoignent. Dans cet article, nous analysons l’impact des imperfections du marché du crédit sur la performance relative de croissance d’un pays et sur la convergence ou la divergence des économies, suivant l’observation de Lucas selon laquelle les flux de capitaux ne vont pas des pays riches vers les pays pauvres alors que le rendement marginal du capital est plus élevé pour ces derniers. Nous analysons également l’interaction entre les imperfections du marché du crédit et les politiques macroéconomiques. Nous montrons que l’interaction entre le développement financier et les variables macroéconomiques comme la productivité ou la volatilité macroéconomique dans des régressions reliant croissance et finance est riche en conclusions empiriques, par exemple sur la convergence et la divergence ou sur les effets sur la croissance des politiques macroéconomiques contra-cycliques.

Is there cross-country convergence in carbon dioxide emissions?

This paper examines the spatial distribution of per capita carbon dioxide emissions in 87 countries during the period 1960–1999. In order to overcome the methodological limitations of conventional convergence analysis, I have used a non-parametric approach which allows us to study the dynamics of the entire cross-section distribution. The results show that cross-country disparities in per capita carbon dioxide emissions decreased throughout the study period. In fact, the probability mass concentrated around the average increased over time, which helps to explain the observed reduction in the polarisation of the distribution under consideration. In any event, the intradistribution mobility level is relatively low. I have also investigated how far spatial differences in per capita carbon dioxide emission levels can be explained by factors such as per capita income, the degree of trade openness or climatic conditions.

Corporate Governance Quality: Trends and Real Effects

This paper constructs a composite index of corporate governance quality, documents its evolution from 1994 through 2003 in selected emerging and developed economies, and assesses its impact on aggregate and corporate growth and productivity. Our investigation yields three main findings. First, corporate governance quality in most countries has overall improved, although to varying degrees and with a few notable exceptions. Second, the data exhibit cross-country convergence in corporate governance quality with countries that score poorly initially catching up with countries with high corporate governance scores. Third, the impact of improvements in corporate governance quality on traditional measures of real economic activity-GDP growth, productivity growth, and the ratio of investment to GDP- is positive, significant, and quantitatively relevant, and the growth effect is particularly pronounced for industries that are most dependent on external finance.

Diffusion of digital mobile telephony: Are developing countries different?

Factors determining the diffusion of digital mobile telephony across developed and developing countries are studied with the aid of a Gompertz model. After controlling for other factors, the speed of diffusion per se is not significantly different between the two groups of countries. Standards competition hinders and market competition promotes diffusion in both groups. Various factors are, however, more important in a developing country context: having a large potential user base, accumulating network effects, being open, commanding a high (non-telecom) technological level, and introducing innovation(s) complementing mobile telephony. Late entrants experience faster diffusion promoting cross-country convergence.

Foreign direct investment and wages: a cross-country analysis

While globalization has led to overall economic growth in a number of countries, questions abound on its distributional effects, especially on rising wage inequality across nations. The main objective of this study is to investigate empirically the effects of foreign direct investment (FDI) on wages in a cross-country setting. We investigate the general equilibrium propositions that capital inflows (outflows) increase (lower) wages in host (home) countries due to the change in relative factor endowments. We also explore whether capital inflows have differential impacts on skilled and unskilled wages in developing economies. Time-series data on 26 countries, 15 developed and 11 developing, are used to fit the labour share equation derived from a translog GNP function with net FDI stock as one of its arguments. Results confirm that capital movement brings about a cross-country convergence of wages. However, there is some evidence that inward FDI flows increase the wage gap between skilled and unskilled workers in developing countries.

Do Standards of Living Converge? A Cross-country Study

Cross-country convergence in `standards ofliving' is an important phenomenon thatattracted the researchers in Economics for along period. These studies take into accountthe growth of per capita gross domesticproduct or labor productivity as a measure ofstandard of living. The present study measuresthe standard of living in terms of theindicators reflecting the quality of life ofthe inhabitants of the country rather thanincome or productivity and examines whetherstandards of living converge across economiesover a fairly long period of time, such as 35years (1960–1995). In this connection, the paperfollows the straightforward approach to testinter-country convergence which relates therate of growth of income (GDP) per capita withinitial income. The convergence tests for theindicators reflecting quality of life of humanbeings, such as, infant survival rate, lifeexpectancy at birth, adult literacy rate,calorie intake as percentage of requirement forthe full sample as well as for three incomegroups indicate that in almost for all thecases for all the indicators divergence isobserved rather than convergence. For infantsurvival rate and life expectancy for the highincome group no definite indication issuggestive. Divergence is also observed forper capita real gross domestic product for alltypes of sample.

Crop Yield Convergence: How Russia's Yield Performance Has Compared to Global Yield Leaders

This paper examines whether there has been cross-country convergence among yields for selected crops important to Russia and the New Independent States. The only crop that showed yield convergence globally was wheat, although several crops in sub-samples displayed convergence. In the reform era, Russian yields for several crops declined, leading to gaps between Russia and the global yield leaders that are wider now than in the study's initial starting period (1962). These findings are consistent with recent studies showing declining efficiency in the reform era. Input price liberalization and institutional constraints exerted downward pressure on yields, offsetting gains achieved by opening up to the global market.

Trade Liberalization, Economic Growth and Convergence: Evidence From East Asian Economies

In recent years most studies analyzing cross-country convergence have ignored the role of international trade, simply framing the analysis in a Solow world. These models then have very limited power in explaining the economic growth of East Asia, given that East Asian integration is largely due to the market-driven forces, trade induced by foreign direct investment (FDI). This paper investigates the interrelationship between regional integration and economic convergence by linking income convergence to intra-regional trade and FDI. A central focus of the model is on how the degree of market integration driven through trade and FDI interacts with income convergence among the East Asian countries during the period 1960-1996. We shed light on the significance of trade openness, liberalization and regional integration in contributing to cross-country income convergence.

Distribution Dynamics and Cross‐Country Convergence: A New Approach

Distribution dynamics is a method for studying the evolution in time of an entire cross‐section distribution and has been initially employed to assess cross‐country convergence of per capita incomes. It has subsequently seen a widespread application in many different economic areas. When describing the law of motion of the distribution as a Markovian stochastic process, working in a discrete state‐space set up has several advantages, but the arbitrary discretisation of a continuous state‐space process has the undesired effect of removing the Markov property. This paper outlines a rigorous method for discretising a continuous state‐space Markov chain. The method is then applied to the distribution of per capita income across countries to reassess the (non‐) convergence phenomenon. It is found that the long run polarisation of per capita incomes across countries emerges even more dramatically than in previous studies.