Converging to Convergence

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Abstract

Neoclassical theory predicts convergence towards steady-state income, determined by policies, institutions, and culture. Empirical tests of convergence in the 1990s found that conditioning on institutions mattered: unconditionally, the norm was divergence, if anything. We revisit these tests with 20 years of additional data. While the literature on institutions emphasizes their historical origins and persistence, we find substantial changes. First, there has been a trend towards unconditional convergence since the 1960s, leading to convergence since the early 2000s. Second, policies and institutions have converged substantially, towards development-favored institutions - those associated, across countries, with higher levels of income. Third, the institutional changes are larger, on average, than those predicted by the cross-sectional income-institution slope; while the slope itself has remained stable. Fourth, the growth-institution slope - the coefficients of growth regressions - has decreased substantially, resulting in a shrinking in the gap between conditional and unconditional convergence. We discuss the implications of these new patterns for models of growth.

This paper is co-authored with Jack Willis (Columbia) and Yang You (Harvard).  

The preliminary version of the paper is available by request to iems@ust.hk.  

About the Speaker

MIchael Kremer

 

Michael Kremer was awarded the 2019 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. He is University Professor in the Kenneth C. Griffin Department of Economics at the University of Chicago. He is a Member of the National Academy of Sciences, a recipient of a MacArthur Fellowship and a Presidential Faculty Fellowship, and was named a Young Global Leader by the World Economic Forum. Kremer’s recent research examines education, health, water, and agriculture in developing countries.  More >> 

Jointly hosted by HKUST IEMS, this seminar is part of the "Distinguished Speakers in Economics” series sponsored by Department of Economics and Center for Economic Policy at HKUST.   

 

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