We Are with Her!

Since 2007 growth in the Global North has totally cratered. Thus if you run convergence regressions for which the past decade is a considerable share of the sample, you find unconditional convergence. Why? Because the Global North has had a horrendous business cycle. The Global North is was initially rich. And the computer is smart enough to use initial wealth as an indicator that cyclical performance since 2008 has been abysmal. But for any regressions starting before 1990 even when they include 2008-2018 (and much more so when they do not), the divergence up until 2008 is larger than the convergence induced by the post-2007 cratering of the Global North. The big fact for the entire period since World War II remains: Divergence, Bigtime—at least when observations are countries. It's not "everything you know about cross-country convergence is (now) wrong". Estimated β over the entire period since 1960 is still -0.2. It's "catastrophic policy failure in the Global North since 2008". (Of course, if your unit of observation is people rather than nations, that China & India have done very well and have 2.3 billion matters a lot): Dietz Vollrath: New Evidence on Convergence: "Dev Patel, Justin Sandefur, and Arvind Subramanian posted the other day some new evidence on cross-country convergence... poor countries grow faster than rich ones, on average...

...They set this up as a counter-point to an article coming out in the Journal of Economic Literature by Paul Johnson and Chris Papageorgiou that says cross-country convergence doesn’t occur. The difference in the PSS post and the JP paper is that PSS look at relatively recent windows of data... whether countries that were poor in 1990 grew faster than rich countries in 1990 from 1990 to 2014.... JP... look at longer time frames... not much evidence countries that were poor in 1960 grew faster than rich countries in 1960. This isn’t a contradiction with PSS. Both can be true at once. All PSS have done is indicated that around twenty-five years ago poor countries did start growing faster than rich countries. The implication of that finding is that poor countries are converging to rich country GDP per capita. And while that statement is defensible, it does need a host of qualifications, because it doesn’t mean you should expect that developing countries are soon going to look like Western Europe. This post is meant to pick through those qualifications...


#shouldread #economicgrowth #convergence #divergence

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