Galton's Fallacy and Tests of the Convergence Hypothesis (Now published in Scandinavian Journal of Economics 95 (4), 1993, pp.427-443.)

Danny Quah

STICERD - Econometrics Paper Series from Suntory and Toyota International Centres for Economics and Related Disciplines, LSE

Abstract: Recent tests for the convergence hypothesis derive from regressing average growth rates on initial levels: a negative initial coefficient is interpreted as convergence. These tests turn out to be plagued by Galton's classical fallacy of regression towards the mean. Using a dynamic version of Galton's fallacy, I establish that coefficients of arbitrary signs in such regressions are consistent with an unchanging cross-section distribution of incomes. Alternative, more direct empirics used here show a tendency for divergence, rather than convergence, of cross-country incomes.

Keywords: Convergence hypothesis; regressing average growth rates; Galtons fallacy; coefficients of arbitrary signs; divergence of cross-country incomes. (search for similar items in EconPapers)
Date: 1993
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Citations: View citations in EconPapers (134)

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Persistent link: https://EconPapers.repec.org/RePEc:cep:stiecm:265

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