GROWTH AND MARKOV CHAINS: AN APPLICATION TO ITALIAN PROVINCES

Abstract. Distribution dynamics is a method for studying the evolution in time of an entire cross-section distribution and has been initially employed to assess cross-country convergence of per capita incomes. It has subsequently seen a widespread application in many different economic areas. When describing the law of motion of the distribution as a markovian stochastic process, working in a discrete state-space set up has several advantages, but the arbitrary discretisation of a continuous state-space process can have the undesired effect of removing the Markov property. This paper outlines advantage and limits linked with the use of this approach and propose a methodology to use in this kind of research. The methodology is then applied to per capita income data for 92 Italian provinces over the period 1952-1995