Further convergence accounting

Abstract

This article extends the convergence accounting framework established by Serrano and proposes a simple way to statistically test for the significance of different factors of production affecting labour productivity convergence. The result comes from expressing the log of labour productivity as a sum of different factors in a Cobb-Douglas production function. The end result is that a similar accounting exercise to that in Serrano can be done using the different factors driving convergence. Its application to OECD countries over the period 1965–1990 illustrates the approach and shows that, in agreement with most of the literature, total factor productivity is the factor that has contributed most to labour convergence and that physical investment in non-residential capital is the second most important one. Human capital accumulation, on the other hand, has had little effect throughout the period, but has taken on an increasing importance in recent years. However, from the point of view of the convergence of each factor considered individually, all factors have converged, human capital having done so the most quickly.