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Initial human capital or the rule of law: what matters for the income convergence of poor countries?

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Abstract:

The article analyses conditional β-convergence among the low income countries using a panel data framework covering the period 1960 to 2008. The estimation of conditional income convergence is based on the augmented Solow model with system GMM technique for the dynamic panel data. More importantly, the article assesses the role of initial human capital stock and the rule of law in the income convergence of poor countries by considering further categorizations of the poor countries based on these two variables. This is the first study on the comparative properties of human capital and the rule of law in the income convergence of poor countries utilizing a dynamic panel framework. The full sample of low income countries does not show any evidence of conditional income convergence. The categorizations on the basis of initial human capital stock do not alter the conclusion of no income convergence. However, the subsample of low income countries with a better rule of law exhibits positive evidence of convergence towards the steady states. The article concludes that there exists a greater role of the rule of law, than initial human capital stock, in the income convergence of poor countries and vice versa for the high and middle income countries.

Keywords: O47; O50; augmented Solow model; dynamic system GMM; initial human capital; rule of law

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2013.831172

Affiliations: Department of Economics, University of Bath, Claverton Down, 27AY, Bath, BA, UK

Publication date: January 12, 2014

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