Economic divergence and institutional change: some observations on the convergence literature

Poor economic performance in a country will often lead to changes in the do mestic policies and institutions, political instability, or changes in inte rnational relations. Induced institutional change of this kind affects the interpretation of the empirical evidence on economic convergence: a diverge nt process may be stabilized by institutional and political intervention. S tabilization may result even if the effects of each intervention are stocha stic and the expected value of the benefits from each reform is non-positiv e. Thus, the appearance of conditional convergence may carry no implication s for 'the underlying parameters of technology and preferences.' (C) 1999 E lsevier Science B.V. Ail rights reserved. JEL classification: O47;O11;F40.