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

PurposeThis paper investigates income convergence using different convergence concepts and methodologies for 72 countries over the period between 1960 and 2010.Design/methodology/approachThis study applies beta (β), sigma (s), stochastic and club convergence approaches. For β-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 weak s-convergence approaches for s-convergence, it applies three different unit root tests for stochastic convergence. To test club convergence, it estimates the log-t regression.FindingsThe results reveal that (1) there exists conditional β-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/implicationsThe 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/valueContrary to the previous literature, which is generally restricted to testing the existence of absolute and conditional β-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.

On the Substitution of Private and Public Capital in Production

Most macroeconomic models assume that aggregate output is generated by a specification for the production function with total physical capital as a key input. Implicitly this assumes that private and public capital stocks are perfect substitutes. In this paper we test this assumption by estimating a nested-CES production function whereas the two types of capital are considered separately along with labor as inputs. The estimation is based on our newly developed dataset on public and private capital stocks for 151 countries over a period of 1960-2014 consistent with Penn World Table version 9. We find evidence against perfect substitutability between public and private capital, especially for emerging and LIDCs, with the point estimate of the elasticity of substitution estimated closely around 3.

Εκπαίδευση, χρηματοοικονομικές δαπάνες και οικονομική ανάπτυξη

Στην παρούσα διατριβή διερευνάται η σχέση ανάμεσα στην εκπαίδευση και την οικονομική ανάπτυξη, στην περίπτωση της Ελλάδας μεταπολεμικά (1950-2009). Η εκπαίδευση προσεγγίζεται μέσα από τις δημόσιες εκπαιδευτικές δαπάνες, τα ποσοστά των εγγεγραμμένων και τα μέσα έτη εκπαίδευσης, και η οικονομική ανάπτυξη μέσα από μία σειρά από θεμελιώδεις μακροοικονομικές μεταβλητές. Για το σκοπό αυτό παρουσιάζεται αναλυτικά η πορεία ενός πλήθους χρονολογικών σειρών που αφορά: εκπαιδευτικές μεταβλητές, χρηματοοικονομικές δαπάνες, παραχθέν προϊόν, πληθυσμιακά δεδομένα, πηγές χρηματοδότησης και δείκτες αξιολόγησης της εκπαίδευσης. Ο κύριος όγκος των δεδομένων συλλέχτηκε από τις εκδόσεις των Στατιστικών της Εκπαίδευσης, των Στατιστικών Επετηρίδων και τους Εθνικούς Λογαριασμούς της ΕΛΣΤΑΤ, καθώς και από τη βάση δεδομένων Penn World Table 9.0 (Feenstra, Inklaar, and Trimmer, 2015). Στην εμπειρική ανάλυση χρησιμοποιώντας την προσέγγιση των Johansen (1988) και Johansen and Juselius (1990) και εφαρμόζοντας ένα Διανυσματικό Υπόδειγμα Διόρθωσης Σφαλμάτων (Vector Error Correction, VEC model), επιδιώκεται να ελεγχθεί η σχέση ανάμεσα στην εκπαίδευση και στο παραγόμενο προϊόν. Τα αποτελέσματα της εμπειρικής ανάλυσης, υποδεικνύουν την ύπαρξη μακροχρόνιας σχέσης συνολοκλήρωσης ανάμεσα στην εκπαίδευση και στο πραγματικό ΑΕΠ. Επίσης, εφαρμόζοντας την προσέγγιση των Toda – Yamamoto (1995) διαπιστώνεται ότι το ανθρώπινο κεφάλαιο αιτιάζει κατά Granger την οικονομική ανάπτυξη, χωρίς να διαπιστώνεται αντίστροφη σχέση αιτιότητας.

Get Data Ready: Import, Inspect, and Prepare Data

This chapter shows how to read an original raw dataset Penn World Table 7.0 in the comma-delimited format into R, how to create a corresponding data object, how to inspect the imported data visually, how to obtain information on dataset attributes (dimensions, variable names, etc.), how to graph select variables, and how to manage variables, observations, and datasets in order to get data ready for analysis. The chapter also shows how to import datasets of different formats into R and other miscellaneous programming information. Chapter 2 covers a large amount of materials that are necessary for getting data ready for analysis, even at the beginner’s level

The two faces of human capital and their effect on technological progress

The aim of the paper is to investigate the effect of a new international estimate of human capital on the process of innovation and technology catch-up in developed countries. The new human capital variable is a measure of average human capital efficiency per hour worked that considers the role of both the quantity and quality of education. Our methodology is based on the framework proposed by Jess Benhabib and Mark A. Spiegel (2005) that uses a logistic function of technology diffusion. The analysis employs panel econometrics and tackles the endogeneity bias. Empirical results show robust evidence of the significance of this human capital variable as a driver of innovation and diffusion. The effects of cognitive skills on technological progress are higher the closer the economies are to the technology frontier. Furthermore, as technological progress has been measured using the improved total factor productivity (TFP) variables built in Penn World Table (PWT) 8.0, we confirm the existence of social returns to human capital.

Productivity, institutions, and market beliefs: three entrepreneurial interpretations

Purpose Inspired by the debates among economists about the role of beliefs and informal institutions in economic development, the purpose of this paper is to derive and test different hypotheses about the ways beliefs about the market economy, institutions and policies, and productive entrepreneurship are intertwined. Design/methodology/approach The paper derives from the literature three hypotheses unified around the idea of (political, cultural, and market) entrepreneurship. The paper then tests these hypotheses by running various country-level regressions intended to check the relationships between formal institutions and policies (measured by World Governance Indicators and by the Economic Freedom of the World index), productive entrepreneurship (measured by total factor productivity form the Penn World Table), and different kinds of market beliefs from the World Values Survey (WVS). Findings The sociological hypothesis says that more pro-market beliefs provide incentives for innovation by recognizing entrepreneurship as a dignifying activity. The political hypothesis says that people with more pro-market beliefs will demand, and therefore live with, more pro-market institutions and policies. The “Schumpeterian” hypothesis says that it is market institutions that make it possible for entrepreneurs to run against anti-market beliefs, and innovate. The results support the Schumpeterian hypothesis, mainly because market beliefs predict institutions and policies as well as productivity very poorly, while formal institutions and policies make a much better job of this. Originality/value The paper contrasts three different hypotheses concerned with the broader consequences of political, cultural, and market entrepreneurship and tests them by making use of the time structure of the observations found in the WVS.

Trying to Understand the PPPs in ICP 2011: Why Are the Results So Different?

Purchasing power parity exchange rates, or PPPs, are price indexes that summarize prices in each country relative to a numeraire country, typically the United States. These numbers are used to compare living standards across countries, by academics in studies of economic growth, particularly through the Penn World Table, by the World Bank to construct measures of global poverty, by the European Union to redistribute resources, and by the international development community to draw attention to discrepancies between rich and poor countries. The International Comparison Program (ICP) collects the detailed prices on which these indexes are based on an irregular basis. In 2014, the ICP published PPPs from the 2011 round that are sharply different from those that were expected from extrapolation of the previous round, ICP 2005. These discrepancies will eventually have important implications for the Penn World Table, and for international comparisons of living standards given that the PPPs are used to convert countries’ national accounts—GDP and consumption, for example—from local currency to common currency units (international dollars.) The world according to ICP 2011 looks markedly more equal than the world according to ICP 2005. This paper investigates why this happened. We identify a likely source of the problem in the way that the regions of the ICP were linked in 2005. We use two different methods for measuring the size of the effect. Both suggest that the 2005 PPPs for consumption for countries in Asia (excluding Japan), Western Asia, and Africa were overstated relative to the United States by between 18 to 26 percent. Per capita consumption in international dollars of these countries was therefore too low in 2005 and more likely to be accurately estimated in 2011. (JEL E31, F31, I31, I32, O11, O19)

Productivity Convergence and Asian Trade Blocks

The present chapter tries to examine the trend of productivity growth and the process of convergence of productivity among the countries within three blocks viz., ASEAN, APEC and SAARC, using the data compiled by R. Summers and A. Heston in Penn World Table -Mark 5.6 and 7.1. Applying Galton model of the growth process it indicates that the countries within ASEAN and SAARC block do not show any convergence of productivity during the period 1960 to 2010. However, the countries within APEC show the sign of convergence of productivity. Standard tests for convergence show that only the APEC group of countries satisfies the test of absolute convergence that is significant whereas ASEAN and SAARC fail to satisfy the test of absolute convergence. The application of the test of conditional convergence on the ASEAN group of countries does not satisfy the criteria of convergence conditioned by the volume of investment but it shows strong tendency of conditional convergence of productivity among the countries of SAARC trade block.

The Next Generation of the Penn World Table

We describe the theory and practice of real GDP comparisons across countries and over time. Version 8 of the Penn World Table expands on previous versions in three respects. First, in addition to comparisons of living standards using components of real GDP on the expenditure side, we provide a measure of productive capacity, called real GDP on the output side. Second, growth rates are benchmarked to multiple years of cross-country price data so they are less sensitive to new benchmark data. Third, data on capital stocks and productivity are (re)introduced. Applications including the Balassa-Samuelson effect and development accounting are discussed. (JEL C43, C82, E01, E23, I31, O47)