GROWTH AND CONVERGENCE IN A MULTICOUNTRY EMPIRICAL STOCHASTIC SOLOW MODEL

The paper considers international per capita output and its growth usi ng a panel of data for 102 countries between 1960 and 1989. It sets ou t an explicitly stochastic Solow growth model and shows that this has quite different properties from the standard approach where the output equation is obtained by adding an error term to the linearized soluti on of a deterministic Solow model. It examines the econometric propert ies of estimates of beta convergence as traditionally defined in the l iterature and shows that all these estimates are subject to substantia l biases. Our empirical estimates clearly reflect the :nature and the magnitude of these biases as predicted by econometric theory. Steady s tate growth rates differ significantly across countries and once this heterogeneity is allowed for the estimates of beta are substantially h igher than the consensus in the literature. But they are very imprecis ely estimated and difficult to interpret. The paper also discusses the economic implications of these results for sigma convergence. (C) 199 7 John Wiley & Sons, Ltd.