The Catching up in Steady State per Capita Income: Latin America and the Caribbean

Abstract

This article contributes to the literature on the convergence problem by studying whether there is β-convergence between the economies of Latin America and the Caribbean by analyzing the trend in beta convergence, calculating regressions between ten-year periods of economic growth and the logarithm of per capita income. Thus, the trend of convergence from 1950 can be studied and any sub-period in which absolute convergence has occurred can be detected. For that purpose, the current study uses data from the Penn World Tables between 1950 and 2019 for all economies in the region. Although wider sample empirical tests in the 1990s found little evidence of unconditional convergence of poor countries from the 1950s on, this study tests whether these results still hold for the subsample of Latin American and Caribbean economies. While the Spanish and Portuguese speaking countries show a divergence pattern, the economic integration among the Caribbean Islands is yielding fruit in terms of σ-convergence. The main policy implication is that a major integration of Latin American countries would support convergence to a common steady state. Hence, all the countries should implement policies to develop their comparative advantages.