Economic Convergence With Safe Assets

Ly Hung

Working Papers from HAL

Abstract: The paper characterizes the convergence of economic growth across economies on accounting for the sovereign debts rating, a measure of the safety of government debts. The empirical analysis combines a cross-section with a panel data regression on a sample of 180 economies over 1990-2019. The evidence records that there exists the convergence of economic growth (-convergence): an economy with lower initial per capita GDP has a higher average growth rate of per capita GDP. Moreover, on cross-section data, the sovereign debts rating amplifies the convergence process, and also exerts a positive effect on the steady state level of per capita GDP relative to that level of world leading economy. And on panel data, the convergence only applies for an economy attains a high enough sovereign debts rating (higher than a threshold of 10.8 established by the data). This result also constitutes an inverted-U-shaped dependence pattern of economic growth on the per capita GDP. These analysis together uncover one mechanism for the convergence that a higher sovereing debts rating raises both the domestic investment and foreign capital inflows, then, stimulating the capital stock accumulation toward the steady state per capita GDP.

Keywords: Cross-Section Regression; Safe Assets; Convergence of Economic Growth; Fixed-Effect Panel Regression (search for similar items in EconPapers)
Date: 2021-11
New Economics Papers: this item is included in nep-fdg, nep-gro and nep-sea
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