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The pitfalls of convergence analysis : is the income gap really widening?

Cole, Matthew A. and Neumayer, Eric (2003) The pitfalls of convergence analysis : is the income gap really widening? Applied Economics Letters, 10 (6). pp. 355-357. ISSN 1350-4851

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Abstract

A number of studies have tested whether, globally, per capita incomes are converging over time. To date, the majority of studies find no evidence of absolute convergence, but many find evidence of conditional convergence, i.e. convergence having controlled for differences in technological and behavioural parameters. The lack of evidence of absolute convergence has led to claims that global income inequality is deteriorating. We believe this to be untrue. Most convergence studies are aimed at proving or disproving the neoclassical growth model and hence take the ‘country’ as the unit of measurement. However, if one is making inferences about world income distribution the focus should be on ‘people’ rather than ‘countries’ to prevent China and Luxembourg, for example, receiving equal weighting in the analysis. We use the β-convergence method and two different measures of per capita income and show that there is indeed evidence of income divergence between countries. However, crucially, we also find convincing evidence of income convergence if we weight our regressions by population. Thus, we find that poor peoples’ incomes are growing faster than rich peoples’ incomes, suggesting that global income inequality is in fact improving.

Item Type: Article
Official URL: http://www.tandf.co.uk/journals/routledge/13504851...
Additional Information: Published 2003 © Routledge, part of the Taylor and Francis Group. LSE has developed LSE Research Online so that users may access research output of the School. Copyright and Moral Rights for the papers on this site are retained by the individual authors and/or other copyright owners. Users may download and/or print one copy of any article(s) in LSE Research Online to facilitate their private study or for non-commercial research. You may not engage in further distribution of the material or use it for any profit-making activities or any commercial gain. You may freely distribute the URL (<http://eprints.lse.ac.uk>) of the LSE Research Online website.
Library of Congress subject classification: G Geography. Anthropology. Recreation > G Geography (General)
H Social Sciences > H Social Sciences (General)
Sets: Departments > Geography and Environment
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 23 May 2006
URL: http://eprints.lse.ac.uk/603/

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