Cross-country Income Convergence Revisited

We reassess the convergence properties of the cross-country distribution of income and its determinants using the dataset constructed by Klenow and Rodriguez-Clare (2005) and our updated version of the same data. Consistent with the literature, the ergodic distribution of output per worker features separate convergence clubs. In contrast to previous …ndings, productivity display convergence in the long-run. The long-run distribution of human capital is multi-modal. Keywords: convergence, development accounting. JEL classification: O40, O47. 1 Introduction Whether the income of poor countries tends to catch up with the income of rich ones is a key question in the empirics of economic growth (Durlauf and Quah, 1999; Durlauf, Johnson, and Temple, 2005). We reassess the convergence properties of the cross-country distribution of income and the determinants of convergence using the dataset constructed by Klenow and Rodriguez-Clare (2005) and an updated version of the same data. We adopt distribution dynamics techniques in our empirical analysis (Quah, 2007). In the analysis of the dynamics of a probability distribution, a unimodal ergodic distribution can be interpreted as a necessary condition for “global” convergence.1 Conversely, the more pronounced the multimodality of the long-run distribution, the stronger the evidence of polarization. A common …nding in the literature is multipeakedness of the ergodic distribution of output per capita (or per worker). Most authors then proceed to uncover the causes of “club convergence”either by conditional distribution dynamics or by analyzing the ergodic distributions of the determinants of output per capita (physical/human capital and productivity). Feyrer (2008) uses discrete Markov-chain methods to analyze the determinants of convergence across 95 countries over the 1970-89 period.2 Feyrer …nds a twin-peaked ergodic distribution of output. While the distributions of accumulable factors (physical/human capital) display long-run convergence, the strati…cation of the distribution of total factor productivity (TFP) in two modes is interpreted as responsible for the lack of convergence in output. Johnson (2005) extends Feyrer’s analysis on the same data using a continuous state-space approach. The most important determinant of the bimodal ergodic distribution of output is capital accumulation. TFP, with a “nearly bimodal”long-run distribution, can still play a role. We investigate cross-country convergence using the data constructed by Klenow and Rodriguez-Clare (2005) and our own updated dataset. Consistent with the literature, we …nd that the long-run distribution of output is 1If intradistribution mobility is low, the cross-sectional units in the left (right) tail of the distribution will remain below (above) the unique mode: A long-run distribution where rich remain rich and poor remain poor is not consistent with convergence, even if most of the cross-sectional units have similar levels of income. 2The data used by Feyrer (2008) are constructed as in Klenow and Rodriguez-Clare (2005) but rely on earlier versions of the Penn World Table and the Barro-Lee educational attainment data.