Beta Convergence

Unit root in output, an exponential 2% rate of convergence and no change in the underlying dynamics of output seem to be three stylized facts that cannot go together. This paper extends the Solow-Swan growth model allowing for cross-sectional heterogeneity. We show both theoretically, with an aggregation result, and empirically how the uniform 2% rate of convergence repeatedly found in the literature is the outcome of an underlying parameter of fractional integration strictly between 1/2 and 1. This is consistent both with time series and cross-sectional evidence recently produced