An Empirical Analysis of Convergence Hypothesis

Eatzaz Ahmad and Amber Naz
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Eatzaz Ahmad: Department of Economics, Quaid-i-Azam University, Islamabad.
Amber Naz: Department of Economics, Quaid-i-Azam University, Islamabad.

The Pakistan Development Review, 2000, vol. 39, issue 4, 729-740

Abstract: A useful contribution of wide ranging debate in the growth literature is that it has put forward a number of testable hypotheses. One of such hypotheses is known as the convergence hypothesis whereby it is postulated that in the long run developing countries would catch-up with the developed countries in terms of per capita income. Although the convergence hypothesis has gained researchers’ interest in recent times, the basic proposition was laid down in the neo-classical growth model of Solow (1956) and Swan (1956). Traditionally Solow-Swan model has been regarded as a theoretically consistent answer to Harrods’s (1939) twin problems of discrepancy between the warranted and natural rates of growth and instability in the growth process. Although Solow- Swan model is designed to study growth process within a single country, the concept of conditional convergence is far from being alien to the model; it in fact forms the core of argument in the attack on Harrod-Domar model [Harrod (1939) and Domar (1946)]. The model predicts that under perfect competition and in the absence of market distortions, an economy converges to equilibrium capital-labour ratio to yield steady state growth rate that is equal to the natural growth rate and is dynamically stable.

Date: 2000
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