Conditional Convergence Revisited: Taking Solow Very Seriously

Output per worker can be expressed as a function of technological eciency and of the capital-output ratio. Because technology is exogenous in the Solow model, all of the endogenous convergence dynamics take place through the adjustment of the capital-output ratio. This paper uses the empirical behavior of the capital-output ratio to estimate the speed of conditional convergence of economies towards their steady-state paths. We nd that the conditional convergence speed is about seven percent per year. This is somewhat faster than predicted by the Solow model and is signicantly higher than reported in most previous studies based on output per worker regressions. We show that, once there are stochastic shocks to technology, standard panel economet-ric techniques produce downward-biased estimates of convergence speeds, while our approach does not. E-mail