Dynamics of the Income Distribution across OECD Countries

In this paper we test the convergence hypothesis among OECD economies from 1960 to 1990. The empirical growth literature has found in the OECD the best example of a homogenous group of countries in which the convergence proposition of the constant returns growth model is likely to hold. We analyse the dynamics of the cross-section distribution of incomes and we find that neither absolute nor conditional convergence, in the sense of all economies approaching the OECD average, has taken place along the whole period. In fact, there is substantial inertia in the incomes ranking as well as a group of economies persistently at the bottom of the distribution all through the sample period. Our results indicate that convergence, taken as a single economy property whereby per capita income in each country is stationary around its long-run path, has taken place. However, this result does not tell us very much about whether the economies are approaching each other in the long-run.