Convergence patterns in the world economy: Exploring the nonlinearity hypothesis

Abstract

Purpose: The purpose of this paper is to investigate convergence or divergence trends at global scale. Design/methodology/approach: The paper questions the methodology and findings of the conventional convergence literature using linear OLS models. It introduces polynomial (quadratic) weighted least square (WLS) regression analysis to explore whether a number of economic performance indicators follow a non-linear pattern of change. Findings: The results indicate the formation of two groups in the world: a convergence one, including countries with low to medium-high development levels, and a divergence one including countries with medium-high to very high development levels. Research limitations/implications: Data availability after 1990 (for the composite indicators). Practical implications: The findings shed light on important issues, such as the decrease of economic disparities between countries, the prospects for global economic convergence, and the development of a more equal world. Apart from obvious policy implication such findings are also of theoretical significance, providing a basis to check (indirectly) the validity of alternative growth theories. Originality/value: This is the first paper (to the authors' knowledge) that explores world convergence/divergence employing quadratic WLS regression analysis with a number of economic indicators. WLS regressions enable the removal of the impact of country size on results, whereas non-linear modelling allows the possibility of multiple equilibria and different development trajectories to be taken into account. Finally, the employment of various economic-performance indicators (simple and composite) works as a cross-check of validity for the results provided. © Emerald Group Publishing Limited.