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CONVERGENCE: A CROSS COUNTRY EMPIRICAL ANALYSIS

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Abstract (2. Language): 
In the 1960s, growth theory consisted mainly of the neoclassical model. One of the most important characteristics of this model is that it predicts absolute convergence among the world economies due to the assumption of diminishing returns to physical capital. Thus, all countries should converge to a common level of per capita income and growth. Since economies, however, differ from each other in terms of structural variables -such as, trade policies, infrastructure services, tax rates, the degree of maintenance of property rights, and the rule of law- we would expect only conditional convergence in which every country converges to its steady-state value. While it is hard to support the existence of absolute convergence among world economies, a number of studies report substantial evidence in favor of conditional convergence. The basic problem with the neoclassical theory is that in the steady state, income growth is mainly driven by the changes in exogenous variables. In other words, the steady state growth rate only depends upon exogenous population growth and technological improvements. As a result, since the early 1980s a large number of studies have developed theoretical models in an attempt to endogenize long-run economic growth. These contributions to the analyses of economic growth and development are called "endogenous" growth theory. This theory provides this missing explanation for long-run growth by identifying a number of channels such as R&D activities, human capital accumulation, externalities, and learning by doing through which economic agents can affect long-run growth. The outline of this paper is as follows. Section 2 reviews the basic Solow growth model with and without human capital accumulation. This section also presents the equations to assess the speed of convergence quantitatively. Section 3 describes a standard growth equation and the data sources and definitions. Section 4 separately reports the estimation results for all, developing, and developed countries. Finally, Section 5 concludes the paper.

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