Question 3: At the heart of the Solow model is the prediction of convergence. The strongest prediction, and therefore the one that is potentially the
Question 3: At the heart of the Solow model is the prediction of convergence. The strongest prediction, and therefore the one that is potentially the easiest to test, is called unconditional convergence. Baumol (1986, AER) examined the growth rates of sixteen countries that are among the richest in the world today. In order of poorest to richest in 1870, they are Japan, Finland, Sweden, Norway, Germany, Italy, Austria, France, Canada, Denmark, the United States, the Netherlands, Switzerland, Belgium, the United Kingdom, and Australia. The unconditional convergence hypothesis suggests that a strong negative relationship between growth rates of per capita income (In y -Iny ) and the initial value of per capita income ( In y 870 ). Namely that b-1 based on the following regression specification: In y1979 - In y1870 = A+ bxIn y+ 8. The results are presented in the following figure: Growth and per capita income: Baumol (1986, AER) 09 - . Sweden . Norgay Germany . Canada . Austriad Weimar USA Italy Switzerland Selguards UK 6.5 7.5 Ln (GDP per capita in 1870) Could we make conclusions that the unconditional convergence hypothesis is supported (not rejected) by the data? Why
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