Solow or Lucas? Testing Speed of Convergence on a Panel of OECD Countries

25 Pages Posted: 25 Oct 2010

See all articles by Jens Matthias Arnold

Jens Matthias Arnold

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Andrea Bassanini

Organization for Economic Co-Operation and Development (OECD); IZA Institute of Labor Economics

Stefano Scarpetta

OECD, Directorate for Employment, Labour and Social Affairs; IZA Institute of Labor Economics

Abstract

We test whether the growth experience of a sample of 21 OECD countries over the past three decades is more consistent with the augmented Solow model or the Uzawa-Lucas model, by exploiting the different non-linear restrictions implied by them as regards the relationship between factor shares and speed of convergence. Using cross-country/time-series data, we specify our growth regression without imposing cross-country homogeneity restrictions on the speed of convergence and short-run parameters. Indeed, both theoretical models imply that the speed of convergence to the steady state differs across countries due to heterogeneity in population growth, technical change or progressiveness of income taxes. Our estimated speed of convergence is too fast to be compatible with the augmented Solow model, but is consistent with the Uzawa-Lucas model with constant returns to scale. Our main findings are robust to several robustness tests.

Keywords: AK models, speed of convergence, human capital, PMG estimators, panel data

JEL Classification: O11, O15, O41

Suggested Citation

Arnold, Jens Matthias and Bassanini, Andrea and Scarpetta, Stefano, Solow or Lucas? Testing Speed of Convergence on a Panel of OECD Countries. IZA Discussion Paper No. 5261, Available at SSRN: https://ssrn.com/abstract=1696885

Jens Matthias Arnold (Contact Author)

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Andrea Bassanini

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France
+33 1 45 24 90 32 (Phone)
+33 1 45 24 90 98 (Fax)

HOME PAGE: http://https://sites.google.com/site/bassaxsite/home

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Stefano Scarpetta

OECD, Directorate for Employment, Labour and Social Affairs ( email )

2 rue Andre Pascal
Paris Cedex 16, 75016
France
+33 1 45 24 19 88 (Phone)
+33 1 45 24 18 59 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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