Revisiting the Solow growth model: new empirical evidence on the convergence debate

Sedat Alataş

Journal of Economic and Administrative Sciences, 2021, vol. 39, issue 4, 801-817

Abstract: Purpose - This paper investigates income convergence using different convergence concepts and methodologies for 72 countries over the period between 1960 and 2010. Design/methodology/approach - This study applies beta (β), sigma (s), stochastic and club convergence approaches. Forβ-convergence analysis, it derives the cross-country growth regressions of the Solow growth model under the basic and augmented Cobb–Douglass (CD) production functions and estimates them using cross-section and panel data estimators. While it employs both the widely used coefficient of variation and recently developed weaks-convergence approaches fors-convergence, it applies three different unit root tests for stochastic convergence. To test club convergence, it estimates the log-tregression. Findings - The results reveal that (1) there exists conditionalβ-convergence, meaning that poorer countries grow faster than richer countries; (2) income per worker is not (weakly)s-converging, and cross-sectional variation does not tend to fall over the years; (3) stochastic convergence is not found and (4) countries in the sample do not converge to the unique equilibrium, and there exist five distinctive convergence clubs. Research limitations/implications - The results clearly show that heavily relying on one of the convergence techniques might lead researchers to obtain misleading results regarding the existence of convergence. Therefore, to draw reliable inferences, the results should be checked using different convergence concepts and methodologies. Originality/value - Contrary to the previous literature, which is generally restricted to testing the existence of absolute and conditionalβ-convergence between countries, to the best of the author’s knowledge, this is the first study to consider and compare all originally and recently developed fundamental concepts of convergence altogether. Besides, it uses the Penn World Table (PWT) 9.1 and extends the period to 2010. From this point of view, this study is believed to provide the most up-to-date empirical evidence.

Keywords: Solow growth model; Convergence; Cross-section; Panel data (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jeaspp:jeas-02-2021-0035

DOI: 10.1108/JEAS-02-2021-0035

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