Convergence by Parts

This paper investigates the empirical validity of different classes of ‘development trap’ models of economic growth. Quah (1993) finds that the cross country distribution of per capita income is moving toward a twin peaked distribution. This finding has supported and encouraged a large theoretical literature on development traps that produce twin peaks through physical and human capital accumulation. Contrary to these models, physical and human capital are found to be moving toward single peaked distributions. The productivity residual is moving toward a twin peaked distribution that mirrors that of per capita income. Quah’s result appears to be driven by productivity differences rather than factor accumulation. The importance of productivity is consistent with cross sectional results by Klenow and Rodriguez-Clare (1997) and Hall and Jones (1999). Kremer, Onatski and Stock (2001) and Jones (1997) have questioned the robustness of the lower peak in output. This paper shows that the productivity residual has a more prominent and more robust lower peak than output. A further examination suggests that dynamic interaction between human capital accumulation and productivity may act in the long run to eliminate the low peak in productivity. I would like to thank David Weil, Oded Galor, Peter Howitt, Tony Lancaster, John Driscoll, Carl-Johan Dalgaard, and Eric Edmonds for helpful comments. Thanks to seminar participants at Brown University, Dartmouth College, and the Federal Reserve Board of Governors for helpful comments. All errors are my own. [email protected], Department of Economics, 6106 Rockefeller, Hanover, NH 03755-3514