Growth and Convergence, 1950-2003: What Can We Learn from the Solow Model?
14 Pages Posted: 29 Nov 2008 Last revised: 11 Mar 2009
Date Written: November 26, 2008
This paper shows that the Solow model's predictions are consistent with the data. The standard of living is correlated positively with saving rates and negatively with population growth rates, while just these two variables explain jointly 67% to 73% of the sample's cross-country variation. The empirical findings clearly reject absolute convergence in income per capita but are very strongly supportive of conditional convergence at an estimated average annual rate of 0.8% to 1.2% a year. It is also shown that the speed of convergence is far from constant over time: it has been mostly increasing during 1960-1990, but it has been falling since the early 1990s.
Keywords: Solow Model, Economic Growth, Convergence
JEL Classification: O40
Suggested Citation: Suggested Citation