Case Study: The Convergence Hypothesis
Per capita growth rates tend to be inversely related to the starting level of development measured by real output per person. Therefore, poor countries grow faster than rich ones. According to the convergence hypothesis, over time poor countries will catch up with the rich ones because of their higher growth rates and the power of compound growth. Thus, we will observe a convergence in the standards of living across countries over time.
The goal of this case study is to examine whether we can find support for the convergence hypothesis in the data.
- Collect country-level data on
- Real GDP per capita in 1960; and
- Annual data on real GDP per capita growth rate over the period 1960 – 2020.
from the World Bank Databank, Penn World Table, or Our World in Data.
- Calculate the average real GDP per capita growth rate over the period 1960 – 2020.
- Plot your data with the average real growth on the vertical axis and the starting GDP per capita on the horizontal axis for a) all countries in your sample; and b) for OECD countries.
Do you find evidence of the convergence hypothesis using your entire sample? Using a sample of the OECD countries? Why or why not?
