Annex 4C Beta-convergence testing

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basis since 1970 for a sample consisting of 29 advanced economies and 74 EMDEs. Six oil-exporting EMDEs that had productivity levels above those of the United States in the 1970s are excluded from the statistical analysis of beta and club convergence. For the initial overview of the current distribution of productivity levels, the sample is expanded to 126 EMDEs and 35 advanced economies.

This annex shows the results of the conditional and unconditional beta-convergence tests described in the third section of the main text in more detail.

The simple unconditional beta-convergence regression includes no covariates of productivity growth except the initial level of productivity. Productivity growth is calculated as log difference between the average level of productivity in one decade relative to the preceding decade. The coefficient on initial productivity levels becomes statistically significant only in the post-2000 period. Converting the coefficient to the rate at which the productivity gap declines annually, as in Barro and Sala-i-Martin (1992), shows a decline of 0.5 percent per year in this final period (table 4C.1). Performing the same exercise on a sample containing only advanced economies shows a statistically significant rate of convergence in each decade. In EMDEs, the coefficient is statistically significant only in the final decade of the sample.

TABLE 4C.1 Beta-convergence

Dependent = 10-year log change in productivity 1970-1980s (1) 1980-1990s (2) 1990-2000s (3) 2000-2010s (4) Panel (5)

All economies

Initial productivity 0.028* 0.03* -0.01 -0.05*** 0 Convergence rate (annual) -0.28%* -0.33%* 0.13% 0.53%*** 0.03%

EMDEs

Initial productivity 0.00 -0.03 -0.03 -0.05* -0.03** Convergence rate (annual) -0.02% 0.31% 0.33% 0.46%* 0.27%**

Advanced economies

Initial productivity -0.19*** -0.19*** -0.13*** -0.08* -0.16*** Convergence rate (annual) 2.12%*** 2.04%*** 1.34%*** 0.82%* 1.74%*** Observations (all) 98 98 98 98 392 Observations (EMDEs) 69 69 69 69 276 Observations (AEs) 29 29 29 29 116 * p<0.1; **p<0.05; ***p<0.01

Source: World Bank. Note: Decade dummies are used in the panel specification but country fixed effects are not. Initial productivity is the average of log productivity over the 10 years in the preceding decade, measured in U.S. dollars at 2010 prices and exchange rates. Productivity growth calculated as the change in average log productivity between the two decades (10-year average growth). Productivity is assumed to grow at its average rate between 2010 and 2018 for the final year of the decade (that is, 2019). AEs = advanced economies; EMDEs = emerging market and developing economies.