Is the Rate of ‘Convergence’ Always Constant? Some Empirical Evidence from Sector Level Data of 56 countries, 1975-99

This paper deals with the issue of sector level convergence of gross domestic product for a combined set of developed and underdeveloped countries. A priori it is not assumed that the rate of convergence is constant. Instead, using a flexible functional form, it is found that the rate of convergence indeed varies with the level of income. The results indicate that for all the sectors considered, the rate of convergence falls as the level of GDP rises and it becomes zero after some threshold level of production being achieved. This clearly supports the fact that the effect of diminishing returns becomes stronger with an increase in the level of GDP. This also supports the hypothesis of multiple regime equilibria. Evidence of convergence is much lower in the agricultural sector than in the industrial and services sectors.