Long-Run Catching-Up And Falling-Behind, And Human Capital (PWT 10.0)

Abstract

The recent empirical growth literature has noted that few countries’ incomes grow uniformly over periods longer than a decade or so. We consider growth variations over a period up to 66 years, study growth relative to a benchmark country, and collapse the varieties of growth experiences to two. catching-up relatively and falling-behind both relatively and absolutely. To minimize parameter heterogeneity and differences in fundamentals we consider one geographical region, Sub-Saharan Africa (SSA). Sub-Saharan countries are eminently suitable for this examination because they experience both regimes copiously. The average catching-up (falling-behind) duration is 17.8 (27.2) years, and the number of periods for the two is almost the same. We use panel estimation separately for the two sets of periods, and examine proximate factors for relative income changes. The main difference of the divergence panels from the convergence panels is on the role of human capital. Catching-up (relatively) is mostly explained by human capital and for the catching-up panels, total factor productivity (TFP) is less important than human capital.

Keywords: Long-run income variability and inter-country income differences, Income-level accounting, Proximate factors for growth, Relative convergence and absolute convergence

JEL Classification: I25, J24, O47