Convergence Patterns in the World Economy: Exploring the Non-Linearity Hypothesis

Panagiotis Artelaris, Paschalis A. Arvanitidis and George Petrakos

No DYNREG32, Papers from Economic and Social Research Institute (ESRI)

Abstract: The objective of this paper is to question the conventional convergence literature, which bases its findings on the use of linear regression models. With the use of quadratic WLS regression analysis we show that a number of indicators of economic performance follow a pattern of change that is in essence non-linear. Our results indicate the formation of two clubs at the world scale: A convergence club that includes countries with a low to mediumhigh level of development and a divergence club including countries with a medium-high to very high levels of development. After a critical threshold the forces of divergence at the world scale dominate and the most dynamic countries eventually grow faster. Undoubtedly, the formation of a diverging leaders club and a further increase in world level development gap has serious implications for theory and policy.

Date: 2008
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