Economic Growth Analysis When Balanced Growth Paths May Be Time Varying

Mountford, Andrew (2022): Economic Growth Analysis When Balanced Growth Paths May Be Time Varying.

Abstract

The determinants of an economy's balanced growth path for income per capita may vary over time. In this paper we apply unobserved components analysis to an otherwise standard panel model of economic growth dynamics so that an economy's long run relative income per capita can change at any point of time. We apply this model to data for the world economy from 1970-2019 and for US States from 1929-2021. In both datasets an economy's initial relative income per capita is a good predictor of its long run relative income per capita. While we find evidence for ($\sigma$) convergence in relative income in US States in the years 1929-1970, there is little convergence in subsequent periods. Overall these results provide support for the `Poor Stay Poor' hypothesis of Canova and Marcet (1995).

• Item Type: MPRA Paper
• Language: English
• Keywords: Bayesian Econometrics, Economic Growth, State Space Models, Macroeconomics
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

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