Negative externalities, productivity growth and the catching-up hypothesis

Abstract

This article investigates the catching-up hypothesis for OECD countries. Unlike the previous studies, the results show that countries with low initial per capita income levels catch-up at a faster rate only when the presence of negative externalities is ignored in growth analysis.

Acknowledgements

Frank Gollop, Richard Tresch and Osman Zaim provided helpful comments. Usual disclaimer applies.

Notes

¹ Most of the previous studies conclude that world economies are converging at a constant rate. See Barro and Sala-i-Martin (2004) for a survey of the empirical evidence.

² The Malmquist index was first introduced by Caves et al . (1982). See the survey chapter in Färe et al . (1998) for an extensive list of references to literature and methodology.

³ Recent examples of employing a Malmquist index to test the catching-up hypothesis include Taskin and Zaim (1997) and Maudos et al . (2000). However, these studies do not account for negative production externalities.

⁴ Following Färe et al . (2001), in order to reduce the number of infeasible solutions as much as possible, each year's technology is assumed to be determined by the observations from the current period and the past two periods. Yörük and Zaim (2005) further discuss this issue.