Global Productivity: Trends, Drivers, and Policies by Alistair Dieppe

Author:Alistair Dieppe
Language: eng
Format: epub

where Xi is a set of country characteristics. These country characteristics include the initial levels and changes in variables relating to factors such as educational attainment, trade openness, natural resources, demographics, population health, and governance.

Covariates of convergence. Controlling for the level of human capital, as measured by average years of education, has been found to result in statistically significant convergence (Barro and Lee 1994; Mankiw, Romer, and Weil 1992). Other than direct inputs into the production function, various additional factors have also been found to be important controls for assessing convergence. These have included trade openness and export orientation (Dollar and Kraay 2003; Frankel and Romer 1999; Sachs and Warner 1995), strong institutions (Rodrik, Subramanian, and Trebbi 2004), natural resources and other geographical factors (Easterly and Levine 2001, 2003; Sachs and Warner 2001), and economic or export complexity (Hausmann, Hwang, and Rodrik 2007; Hidalgo and Hausmann 2009).

Pace of conditional convergence. Consistent rates of convergence have also been found when controlling for country characteristics. The “rule of 2 percent” was coined after a common rate of annual income convergence across U.S. states, and separately countries, was identified when controls for factors such as educational levels and political stability were included (Barro and Sala-i-Martin 1992). Most studies have found results within a range of 1 to 3 percent per annum (Durlauf, Johnson, and Temple 2005). An annual convergence rate of 2 percent implies that half of any initial difference in productivity levels will disappear after 35 years.

Evolution of conditional convergence rate. The results of a conditional convergence regression, containing typical country characteristics used in the literature, show that lower initial incomes were associated with higher productivity growth in each decade since the 1980s.11 The convergence rate is estimated to have increased over time, peaking at 1.5 percent per year over the past decade, which if sustained would halve the productivity gap in just under 50 years (figure 4.3, panel D). Previous studies, including recent tests for club convergence, have documented similar rates of conditional convergence but have yet to document the acceleration in pace in recent decades (Johnson and Papageorgiou 2020). The panel specification, covering all decades, shows an annual convergence rate of 1.3 percent, within the range of 1-3 percent found in surveys of the literature of growth regressions on income per capita (annex 4C).12

Conditional or unconditional convergence rates? Unconditional convergence rates have recently turned positive but remain very low, requiring over 100 years to close just half of the average productivity gap. Estimates conditional on other characteristics, such as the level of education and investment, suggest that convergence rates have been much faster and rising in recent decades. However, the conditional convergence concept is less useful as a generalized measure of convergence progress among EMDEs, because it suggests that economies may be on many different productivity paths dependent on their characteristics. A deeper examination of which economies are experiencing fast rates of convergence because of their characteristics can be explored through club convergence analysis.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.