The
conditional convergence hypothesis presumes convergence to a common steady state independently of initial levels, but only among countries that share common structural characteristics (demography, policy, geography...).
Without additional control variables, the test considered absolute convergence, whereas with additional control variables, the test examined
conditional convergence. Tests of [beta]-convergence generally estimate a log-linearized solution to a non-stochastic model with an additive error term.
It has tested absolute and
conditional convergence hypotheses for a set of developed and developing countries by applying pooled least square methodology.
In other words, the model predicts
conditional convergence in the sense that a smaller initial value of real per capita income tends to generate a higher rate of growth per capita.
Conditional convergence. The authors' analysis, as well as previous studies, clearly point out that during the period 1980-2007, the relatively poorer EU countries and regions, mostly in the South (Greece, Portugal, and Spain, but also Ireland), experienced fast output growth and managed to close the income gap with the more advanced nations in the North.
By allowing
conditional convergence of TFP and regional spillovers, their results prove that human capital has a positive and direct effect on TFP, while R&D has a positive but indirect effect.
Without additional control variables, the test considered absolute convergence, whereas with additional control variables, the test examined
conditional convergence. The regressions used to test for P-convergence are generally the log-linearized solutions to a nonstochastic model with an additive error term.
We also test for
conditional convergence, which allows for countries to have different steady states.
Wolff also discusses unconditional and
conditional convergence and a related concept called club or group convergence.
Galor (1996) defined convergence by identifying three different types of convergence: (i) absolute (unconditional) convergence, (ii)
conditional convergence and (iii) "club" convergence.
If [gamma] [greater than or equal to] 2, there exists an absolute convergence of output, whereas 2 > [gamma] [greater than or equal to] 0 implies a
conditional convergence of output.
Conditional convergence requires that the economies are assumed to move towards their own steady states.