Macroeconomic Convergence: International Transmission of Growth and Technical Progress

This paper uses data for nineteen industrial countries over the period 1960-1985 to examine the evidence for international convergence of technical progress. Several models of convergence, including a model in which convergence is affected by changes in a country's openness to trade, are evaluated against competing alternatives. We also assess the extent to which convergence depends on some key measurement issues, including the use of purchasing power parities to compare real output in different countries, the use of different capital stocks in aggregate production functions, and alternative ways of representing embodied or disembodied technical progress. The various models of technical progress are assessed by non-nested tests of both the estimated output equations, using the factor utilization model, and their related factor demand equations. The results show significant evidence of international convergence in the rates of growth of labour efficiency, and some evidence that convergence is faster for countries that have been increasing their openness to international trade. A more general model of output determination, encompassing variations in factor utilization as well as tho autocorrelated technology shocks used in real business cycle models, was found to be preferred over more restricted alternatives.