Barro et al.: Convergence Across States and Regions

Robert J. Barro et al., “Convergence Across States and Regions,” in (1991: The Brookings Institution, 1991), 107-182, http://www.jstor.org/stable/2534639 .

"An important economic question is whether poor countries or regions tend to converge toward rich ones...Although some economic theories predict convergence, the empirical evidence has been a subject of debate. In this study we add to the evidence by extending our previous analysis of economic growth across the US states...The overall evidence weighs heavily in favor of convergence: both for sectors and for state aggregates, per capita income and product in poor states tend to grow faster than in rich states. The rate of convergence3 is, however, not rapid: the gap between the typical poor and rich state diminishes at roughly 2 percent a year" (107-8). This method is then applied to Europe with similar results recorded.

The origin of convergence in the neoclassical model is centered on the assumption of diminishing returns to capital. Because countries who have lower ratios of capital to labor experience these diminishing returns less acutely, they are able to grow more quickly and converge on countries with higher levels of income per capita. The further a country finds itself below the "steady-state", the more likely it is to grow relatively more quickly.

An additional great variety of factors affects convergence. For example, if there are high levels of capital mobility, the diminished capital to labor ratios in poorer countries may actually improve and the affects of diminishing returns may be more strongly felt. Additionally, greater technology transfer from more wealthy countries to more poor countries could speed up the affects of convergence.

The remainder of the paper is the statistical analysis.