A Note on Interpreting the Beta-Convergence Effect

Abstract

This note elaborates on a potential misinterpretation of the convergence speeds that are associated with the beta-convergence effect. Practitioners and certain researchers often commit the common error of using the results from the logarithmic measure of the income gap to interpret the speed of convergence for the income gap in terms of levels. This mistake causes overstatements of the speed of convergence. These overstatements are more pronounced for developing countries than for developed countries. This note also implies that speeds of beta-convergence greater than the conventionally accepted rate of 2-3% are not implausible.

Keywords: beta-convergence effect, economic growth, speed of convergence, developing countries, steady state

JEL Classification: O47