Contents

Abstract 556

Keywords 557

1. Introduction 558

2. Stylizedfacts 561

2.1. A long-run view 562

2.2. Data after 1960 562

2.3. DifferencesinlevelsofGDPperworker 563

2.4.

2.5. Convergence? 567

2.6. The growth slowdown 567

2.7. Does past growth predict future growth? 568

2.8. Growth differences by development level and geographic region 571

2.9. Stagnation and output volatility 573

2.10. A summary of the stylized facts 575

3. Cross-country growth regressions: from theory to empirics 576

3.1. Growth dynamics: basic ideas 576

3.2. Cross-country growth regressions 578

3.3. Interpreting errors in growth regressions 581

4. The convergence hypothesis 582

4.1. Convergence and initial conditions 582

4.2. β-convergence 585

4.2.1. Robustness with respect to choice of control variables 587

Handbook of Economic Growth, Volume 1A. Edited by Philippe Aghion and Steven N. Durlauf © 2005 Elsevier B.V. All rights reserved

DOI: 10.1016∕S1574-0684(05)01008-7

4.2.2. Identificationandnonlinearity: ^-convergence and economic divergence 588

4.2.3. Endogeneity 589

4.2.4. Measurement error 590

4.2.5. Effectsoflinearapproximation 591

4.3. Distributional approaches to convergence 592

4.3.1.σ-convergence 592

4.3.2.Evolution of the world income distribution 593

4.3.3.Distribution dynamics 596

4.3.4.Relationship between distributional convergence and the persistence of initial con­ditions 598

4.4. Time series approaches to convergence 599

4.5. Sources of convergence or divergence 604

5. Statistical models of the growth process 607

5.1. Specifying explanatory variables in growth regressions 608

5.2. Parameter heterogeneity 616

5.3. Nonlinearity and multiple regimes 619

6. Econometric issues I: Alternative data structures 624

6.1. Time series approaches 624

6.2. Panel data 627

6.3. Event study approaches 636

6.4. Endogeneity and instrumental variables 637

7. Econometric issues II: Data and error properties 640

7.1. Outliers 641

7.2. Measurement error 641

7.3. Missing data 642

7.4. Heteroskedasticity 643

7.5. Cross-section error correlation 643

8. Conclusions: The future of growth econometrics 645

Acknowledgements 651

Appendix A: Data 651

Key to the 102 countries 651

Extrapolation 652

Appendix B: Variables in cross-country growth regressions 652

Appendix C: Instrumental variables for Solow growth determinants 660

Appendix D: Instrumental variables for non-Solow growth determinants 661

References 663