An Empirical Assessment of the Convergence Theory of the Solow Model

This study empirically investigates the convergence theory based on the perceived level of diversities in the economic development within the countries of the world. he estimation method employed for this research work is the cross-sectional regression analysis to measure convergence, using data of 1980 and 2010 for 50 selected countries. Data for the study were extracted and sourced from the World Bank development indicators database. From the empirical evidence, we discovered there is a reaction, or better put, a feedback relationship between growth and the initial GDP per capita. This implies that, country with low initial GDP per capita is farther away from their steady state and would grow faster than the countries with high initial GDP per capita but closer to their steady state. On the nexus between the growth and initial GDP per capita, the regression analysis revealed that, level of investment is a catalyst for growth. Hence, we infer that, the poor countries should enhance their level of investment (both in human and physical capital). The more the level of investment, the more would be the level of growth. The model exhibits a natural long-run relationship. This made us to know that, no matter the level of disparities and diversities between the poor countries and the richer ones today; the former would still grow and catches up with the latter. Keywords: Convergence, growth, GDP per capita, investment, economic development, cross sectional.