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A Meta-Analysis of β-Convergence: the Legendary 2%

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Abstract

Abstract.  The topic of convergence is at the heart of a wide-ranging debate in the growth literature, and empirical studies of convergence differ widely in their theoretical backgrounds, empirical specifications, and in their treatment of cross-sectional heterogeneity. Despite these differences, a rate of convergence of about 2% has been found under a variety of different conditions, resulting in the widespread belief that the rate of convergence is a natural constant. We use meta-analysis to investigate whether there is substance to the ‘myth’ of the 2% convergence rate and to assess several unresolved issues of interpretation and estimation. Our data set contains approximately 600 estimates taken from a random sample of empirical growth studies published in peer-reviewed journals. The results indicate that it is misleading to speak of a natural convergence rate since estimates of different growth regressions come from different populations, and we find that correcting for the bias resulting from unobserved heterogeneity in technology levels leads to higher estimates of the rate of convergence. We also find that correcting for endogeneity of the explanatory variables has a substantial effect on the estimates and that measures of financial and fiscal development are important determinants of long-run differences in per capita income levels. We show that although the odds of a study being published is not uniform for studies with different p-values, publication bias has no significant effect on the conclusions of the analysis.

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