Solow or Lucas? Testing Speed of Convergence on a Panel of OECD Countries

Jens Arnold (), Andrea Bassanini and Stefano Scarpetta

No 5261, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We test whether the growth experience of a sample of 21 OECD countries over the past three decades is more consistent with the augmented Solow model or the Uzawa-Lucas model, by exploiting the different non-linear restrictions implied by them as regards the relationship between factor shares and speed of convergence. Using cross-country/time-series data, we specify our growth regression without imposing cross-country homogeneity restrictions on the speed of convergence and short-run parameters. Indeed, both theoretical models imply that the speed of convergence to the steady state differs across countries due to heterogeneity in population growth, technical change or progressiveness of income taxes. Our estimated speed of convergence is too fast to be compatible with the augmented Solow model, but is consistent with the Uzawa-Lucas model with constant returns to scale. Our main findings are robust to several robustness tests.

Keywords: PMG estimators; AK models; human capital; speed of convergence; panel data (search for similar items in EconPapers)
JEL-codes: O11 O15 O41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2010-10
New Economics Papers: this item is included in nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published in: Research in Economics, 2011, 65 (2), 110-123

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Journal Article: Solow or Lucas? Testing speed of convergence on a panel of OECD countries (2011)
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