Galton's Fallacy and Tests of the Convergence Hypothesis

Danny Quah ()

No 820, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Recent tests for the convergence hypothesis derive from regressing average growth rates on initial levels: a negative initial level coefficient is interpreted as convergence. These tests turn out to be plagued by Francis Galton's classical fallacy of regression towards the mean. Using a dynamic version of Galton's fallacy, I establish that coefficients of arbitrary signs in such regressions are consistent with an unchanging cross-section distribution of incomes. Alternative, more direct empirics used here show a tendency for divergence, rather than convergence, of cross-country incomes.

Keywords: Convergence; Cross-country growth; Galton's Fallacy; Regression Towards the Mean; Stochastic Kernel; Transition Matrix (search for similar items in EconPapers)
JEL-codes: C10 C22 C23 E17 O40 (search for similar items in EconPapers)
Date: 1993-07
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Citations: View citations in EconPapers (796)

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Related works:
Working Paper: GALTON'S FALLACY AND THE TESTS OF THE CONVERGENCE HYPOTHESIS (1990)
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