Convergence patterns in the world economy: exploring the nonlinearity hypothesis

Abstract

Purpose

The purpose of this paper is to investigate convergence or divergence trends at global scale.

Design/methodology/approach

The paper questions the methodology and findings of the conventional convergence literature using linear OLS models. It introduces polynomial (quadratic) weighted least square (WLS) regression analysis to explore whether a number of economic performance indicators follow a non‐linear pattern of change.

Findings

The results indicate the formation of two groups in the world: a convergence one, including countries with low to medium‐high development levels, and a divergence one including countries with medium‐high to very high development levels.

Research limitations/implications

Data availability after 1990 (for the composite indicators).

Practical implications

The findings shed light on important issues, such as the decrease of economic disparities between countries, the prospects for global economic convergence, and the development of a more equal world. Apart from obvious policy implication such findings are also of theoretical significance, providing a basis to check (indirectly) the validity of alternative growth theories.

Originality/value

This is the first paper (to the authors' knowledge) that explores world convergence/divergence employing quadratic WLS regression analysis with a number of economic indicators. WLS regressions enable the removal of the impact of country size on results, whereas non‐linear modelling allows the possibility of multiple equilibria and different development trajectories to be taken into account. Finally, the employment of various economic‐performance indicators (simple and composite) works as a cross‐check of validity for the results provided.

Citation

Artelaris, P., Arvanitidis, P.A. and Petrakos, G. (2011), "Convergence patterns in the world economy: exploring the nonlinearity hypothesis", Journal of Economic Studies, Vol. 38 No. 3, pp. 236-252. https://doi.org/10.1108/01443581111152373