Economic growth and economic development 34

10 Introduction to Modern Economic Growth USA log gdp per capita Spain China Britain Brazil India 1800 Ghana 1850 1900 year 1950 2000 Figure 1.13 The evolution of income per capita in the United States, Britain, Spain, Brazil, China, India and Ghana, 1820-2000 postwar period, the income gap between countries that share the same characteristics typically closes over time (though it does so quite slowly) This is important both for understanding the statistical properties of the world income distribution and also as an input into the types of theories that we would like to develop How we capture conditional convergence? Consider a typical “Barro growth regression”: (1.1) gt,t−1 = β ln yt−1 + X0t−1 α + εt where gt,t−1 is the annual growth rate between dates t − and t, yt−1 is output per worker (or income per capita) at date t−1, and Xt−1 is a vector of variables that the regression is conditioning on with coefficient vector α These variables are included because they are potential determinants of steady state income and/or growth First note that without covariates equation (1.1) is quite similar to the relationship shown 20