Javier Andres, Jose E. Bosca and Rafael Domenech
The empirical literature of growth has steadly improved the
econometric methods used mainly to address the effect of cross-country heterogeneity in
the estimated convergence rate. In this paper, we highlight an important implication of
this process of econometric refinement that has so far received little attention. We show
that the picture that emerges from models that allow for generalised heterogeneity changes
our view of the process of convergence within the OECD. Estimation methods that allow for
non or partial heterogeneity stress the importance of transitional dynamics in the process
of convergence. Thus, sigma convergence is mostly accounted for by beta convergence. On
the contrary, when generalised parameter heterogeneity is (tested and) allowed for we find
that the observed reduction in the dispersion of per capita income within the OECD has
little bearing on transitional dynamics. Sigma convergence in this case happens because
the long run features of these countries are becoming increasingly similar (convergence in
steady states). There are also striking differences across estimated models as regards the
evolution of the relative position of the average country with respect to its steady state
income per capita level.
[PDF document][Data]
|