CONVERGENCE, ENDOGENOUS GROWTH, AND PRODUCTIVITY DISTURBANCES

Kelly (1992) has recently shown that evidence on convergence cannot be taken as evidence against endogenous growth in general. This study us es a well-known class of stochastic growth models to show other diffic ulties with traditional empirical studies of convergence. Kev paramete rs typically cannot be estimated consistently in cross-section regress ions. When the parameters are assumed known, implications for converge nce are unavailable except under restrictive and economically unmotiva ted assumptions. Those same assumptions that relate key parameters to cross-country convergence render cross-section regressions impossible to estimate consistently.