Reopening the Convergence Debate: A New Look at Cross-Country GrowthEmpirics

There are two sources of inconsistency in existing cross-country empiricalwork on growth: correlated individual effects and endogenous explanatoryvariables. We estimate a variety of cross- country growth regressions usinga generalized method of moments estimator that eliminates both problems.In one application, we find that per capital incomes converge to their steadystatelevels at a rate of approximately 10% per year. This result stands insharp contrast to the current consensus, which places the convergence rateat 2%. We discuss the theoretical implications of this finding. In anotherapplication, we perform a test of the Solow model. Again, contrary to priorresults, we reject both the standard and the augmented version of the model.[...]