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.

The Impact of the Digital Economy on CO2 Emissions: A Theoretical and Empirical Analysis

Since the Industrial Revolution, human activities have led to the emission of a lot of greenhouse gases, such as carbon dioxide, sharply increasing the concentration of greenhouse gases in the atmosphere and resulting in serious global warming. With the rapid development of computer technology, the digital economy is gradually becoming the engine of economic growth. As a new economic mode, how the digital economy affects the environment is worth studying. In this paper, we introduced the digital economy into the Solow growth model as technological progress and conducted fixed-effects regressions based on the global panel data of 190 countries from 2005 to 2016. We found an inverted U-shaped, non-linear relationship between CO2 emissions and the digital economy, which supports the environmental Kuznets curve (EKC) hypothesis. We suggest that governments need to not only adopt hedging policies to reduce CO2 emissions caused by the digital economy in the early stage but also promote the development of the digital economy to achieve the goal of global collaborative environmental protection.

Stochastic demand as an addition to the Solow Growth Model

The subject of this research is the Solow Growth Model. The relevance is substantiated by the fact that the Solow Growth Model is conceptually simple, and simultaneously it can be complicated with clarifications and additions. The authors believe that one of such clarification is consideration of the demand as a stochastic variable. The goal of this research is to propose a model that takes into account the random nature of consumer demand based on the Solow Growth Model. The article aims to examine the Solow Growth model; conduct a literature overview of the most common modifications of the model; analyze the well-known modifications and complications of the model; outline the methods of such modifications and complications; offer Solow Growth Model supplemented with microeconomic substantiation with consideration of the stochastic demand. The article employs the methods of analysis, synthesis, comparison, and differential calculus. The novelty lies in the statement  that consumption depends on demand; it is intuitively obvious that demand can be considered as stochastic variable. This is explained by the individual traits of the consumers. Therefore, the demand can be described via stochastic differential equation based on the standard Wiener process (analogy with Brownian motion). The article offers a stochastic differential equation of demand. The Solow Growth Model is supplemented with the stochastic differential equation of demand. In conclusion, the authors determine the key modification and complication trends of the Solow Growth Model; developed the model based on the Solow Growth Model with the stochastic differential equation of demand as its addition. Further research should be aimed at solution of the obtained mathematical model supplemented with the stochastic differential equation of demand.

Comparative Effects of Foreign Direct Investment from China and Other Sources on Africa’s Economic Growth

This study examines comparatively the growth effects of FDI from China, the European Union, the US and the rest of Asia in Sub-Saharan Africa for the period 2003–2012. We develop theoretical arguments from the existing literature to show that differences in FDI data sources, methodological and econometric approaches may be part of the explanation for mixed findings of previous empirical studies, precisely on the growth effects of Chinese FDI in Africa. Our results using bilateral FDI data compiled by UNCTAD, the FDI-augmented version of the Solow growth model and the 2SLS estimator indicate a significantly negative direct impact of Chinese FDI on growth in Sub-Saharan Africa while the impact of other FDI sources is statistically insignificant. JEL Classification: B22, E22, F43

A Model of Money and Capital

Our baseline model is extended to include capital in the production process as in the standard Solow growth model. Balanced growth paths are characterized, and these are related to Kaldor’s growth facts.

Empirics of Solow growth model in Nepali economy

Economic growth model developed by R. M. Solow explained the steady-state equilibrium in long run based on neoclassical production function with factor substitutions and diminishing returns in context of developed economy. As the nature of Nepali economy is different than developed economy, this paper aims to analyze economic growth of Nepal in the Solow growth model standard. Specifically, it aims to examine the effect of saving rate, labor growth and human capital on economic growth. On basis of steady-state equilibrium equation developed by Solow, regression equation is developed to find the effect of exogenous variables saving rate and labor growth rate on per capita GDP. Further, the model is extended by adding human capital as regressor. Data of 44 years of Nepali economy are used to analyze the model. Since time series of all the variables are stationary at first difference and they contain same stochastic trend, coefficients are estimated by using ordinary least square method. The analysis shows that the Solow model is applicable to Nepali economy as the predicted coefficients are very close to estimated coefficients. However, the estimated coefficients are very less than the predicted coefficients of the extended model. Furthermore, coefficient of labor growth rate is statistically insignificant in the extended model.