The Solow Model and Conditional Convergence

The Solow Model and Conditional Convergence
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The Solow Model and Conditional Convergence
What is Conditional Convergence?
To understand the meaning of conditional convergence, it is necessary to critically conceptualize the concept via the two categories of beta convergence (i.e., β-convergence). Beta convergence relates to the per capita income convergence via the "catch up" growth framework instead of an approach that describes the convergence related to per capita income cross-sectional dispersion. The contemporary definition of convergence is anchored on the relationship between the subsequent growth and initial income. There are two variants of beta convergence – the unconditional (absolute) variant and the conditional variant. Two economies portray convergence when the poorer nation with lesser initial income develops faster compared to the other. In this vein, absolute (unconditional) convergence occurs when nations' per capita income converges to the stable state figure.
On the other hand, conditional convergence allows the respective economies to have distinct per capita income levels towards which it is meeting. This means that the respective nations are converging to their steady-state and that all development rates will meet an equilibrium (equalization state) in the long run (Wilson, 2017, p.112). The conditional convergence considers the association after conditioning parameters though to influence the output per capita steady-state value, including the rates of human and physical capital accumulation and populace growth (Johnson and Papageorgiou, 2019, n.p.).
Is The Empirical Evidence from The Solow Model Consistent with The Widespread Income Divergence in The World?
There is a strong belief in the Solow model, which predicts that income per capita needs to converge across economies. However, it is crucial to understand that Solow's finding is centered on various assumptions. The simplified depiction of Solow's model is anchored on the assumption that (a) the populace increases at a constant rate, (b) all the consumers within an economy save a constant share of their earnings and spend the rest, and (c) that all enterprises within the nation generate output centered on similar production technologies that use labor and capital as inputs (Corporate Finance Institute, 2021, n.p.). More importantly, the model holds that the product function depicts constant-returns-to-scale (CRS). These assumptions are fundamental to understand how research evidence linked to the Solow model explains or fails to explain the increasing income divergence within the world.
In the past half a century or so, there has been an expanding discrepancy between the average standards of living within the emerging nations of the globe and those of the wealthiest nations. This unfortunate trend does not coincide with Solow's argument that the less developed economies should strive to catch up with the developed economies via technology transfer and capital accumulation. Although the proposition is not new, Baumol's (1986) and Abramowitz's (1986) investigation into its truth as the negative association between initial per capita income thresholds ...