Convergence in the World Economy: Evidence from

Gholamreza Hajargasht, Alicia Rambaldi () and D.S. Prasada Rao ()
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Gholamreza Hajargasht: Griffith University
Alicia Rambaldi: School of Economics and Centre for Efficiency and Productivity Analysis (CEPA) at The University of Queensland, Australia

No WP022025, CEPA Working Papers Series from University of Queensland, School of Economics

Abstract: Convergence in incomes, productivity-catch-up and technology gaps have been studied extensively. This study focuses on convergence in income and income distributions, two factors that determine welfare. The paper offers an intuitive notion of income convergence which is then used in establishing an analytical link between income (sigma) convergence and inequality measures. Empirical results reported are based on data series available from UQICD V3.0 (University of Queensland International Comparison Database) covering 185 countries and the period 1970 to 2019 covering pre- and post-globalization years. Using recently developed econometric methods, the paper finds strong evidence of weak-sigma convergence, absolute and conditional convergence; as well as convergence tested using economic transition curves proposed in Phillips and Sul (2009). However, the results vary depending on the groups of countries considered with robust results for the group of countries classified as the upper-middle income group. World inequality, accounting for income distributions within countries, peaked during 1990 to 1995 with a Gini coefficient around 0.72 decreasing to 0.575 by 2019. There is evidence of a reduction in between- country inequality coupled with a rise in within-country inequality. The paper proposes a new entropy-based measure of divergence between income distributions. Under Pareto-lognormal specification, fitted income distributions for a large number of countries for years between 1970 and 2019, available from the UQICD database, show a significant reduction in divergence in income distribution of countries in the world from 1985 to around 2015 but increasingly slightly until 2019.

Date: 2025-05
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