Economic growth and economic development 34

10

Introduction to Modern Economic Growth

9

USA

log gdp per capita
8

Spain
China

Britain

7

Brazil

6

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 do 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 − 1 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