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Empirical Economics

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24.08.2019

Convergence of GDP per capita in advanced countries over the twentieth century

verfasst von: Antonin Bergeaud, Gilbert Cette, Rémy Lecat

Erschienen in: Empirical Economics | Ausgabe 5/2020

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Abstract

This study compares GDP per capita levels and growth rates across 17 advanced economies over the period 1890–2013 using an accounting breakdown and runs Phillips and Sul (Econometrica 75(6):1771–1855, 2007) convergence tests. An overall convergence process has been at work among advanced economies, mainly after WWII, driven mostly by capital intensity and then TFP, while trends in hours worked and employment rates are disparate. However, this convergence process came to a halt during technology shocks, during the two world wars and since the 1990s, with the convergence of advanced economies stopping far from the level of US GDP per capita.

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For example, it has been particularly hampered since 1990. Indeed, the convergence of the euro area, the United Kingdom and Japan towards the level of US GDP per capita has stopped far from the US level, while reforming or structurally flexible countries have accelerated thanks to the information and communications technology shock. This fact has already been identified in the literature (see for example Crafts and ORourke 2013) and means that the GDP per capita catch-up process is not always continuous.

See “Online Appendix B” for further details about data construction, updates and sources. See also the dedicated website of this database: www.longtermproductivity.com to download the series.

For example, backdating consistent economic series at unchanging border is almost impossible in the case of countries such as Germany whose territories changed considerably over the period 1890–2013.

The accounting breakdown for GDP per capita is described in “Online Appendix A”

In another paper (Bergeaud et al. 2018), the author measures that human capital accounts for 20% to 33% of the growth rate of the Solow residual that we call TFP in the present study.

This offers two advantages over existing databases. First compared to the Maddison (2001) database, we provide estimates of TFP, capital intensity and labour in addition to his GDP per capita estimates. Second, compared to the Penn World Tables, we cover a longer time period and our capital stock estimates are less affected by the initial year steady-state assumption.

The use of different sub-periods should be understood as follows: given the set of information contained in the time series during a given sub-period, does the panel of countries tend to converge towards a common steady state at some point in the future (even if this future is long after the end of this sub-period)? Hence, if the test suggests convergence during one sub-period, this does not mean that the convergence process will occur during this sub-period, but rather that the countries display convergence dynamics during this sub-period.

To control for outliers and check for consistency, a similar chart is presented in “Online Appendix C, section C.3”. This additional chart shows the normalised interquartile range for each series (see “Online Appendix” for details).

In fact, it can be demonstrated that \(\sigma \)-convergence implies \(\beta \)-convergence (see Young et al. 2008).

Whose dynamics could in turn be driven by the convergence in the cost of capital across advanced economies, see Mazet-Sonilhac and Mésonnier (2016).

To be more accurate, the real assumption is that \(\delta _{i,t}=\delta _i+\frac{\sigma _i \xi _{i,t}}{t^k L(t)}\) where L is a slowly varying function satisfying: \(L(at)/L(t) \longrightarrow 1\) as \(t \longrightarrow \infty \) for all \(a>0\) and \(L(t)\longrightarrow \infty \). The logarithm is a good candidate, and it is the function which is recommended by Phillips and Sul (2007) based on Monte Carlo simulations.

In particular, if \(\beta \) is larger than 2 and if the common trend \(\mu _t\) follows a random walk with drift, then Phillips and Sul (2007) argue that there is evidence of convergence in level, whereas if \(\beta \) is between 0 and 2, there is only evidence of convergence in growth rate. Consistently with the study of the trend in GDP per capita presented in Phillips and Sul (2009), we consider that this is the case for our series.

Barro (2015) finds conditional \(\beta \)-convergence in GDP per capita since 1870 over 28 countries at a 2.6% annual convergence rate.

The presence of Canada in the group of laggards is not robust and less consistent with the series of LP and GDP per capita. Canada is thus probably the reason for the weak coefficient associated with club 2 in the 1990–2013 period for TFP and is not considered a laggard in the discussion.

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Titel: Convergence of GDP per capita in advanced countries over the twentieth century
verfasst von: Antonin Bergeaud
Gilbert Cette
Rémy Lecat
Publikationsdatum: 24.08.2019
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 5/2020
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-019-01761-x

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