Economic Growth and Convergence Analysis: MBAF 504 Term Paper

This report analyzes long-run economic growth and convergence, as per the requirements of MBAF 504: Economics from a Business Perspective. The analysis uses GDP per capita data extracted from the World Bank database for the years 1960, 1990, and 2015. The report investigates both unconditional and conditional convergence by comparing the economic growth of rich and poor countries. The study includes a sample of 10 countries, 5 rich (Australia, United Kingdom, United States, Japan, and Canada) and 5 poor (Uganda, Nepal, Nigeria, Rwanda, and Burkina Faso), to assess their growth trajectories. Statistical methods, including summary statistics, histograms, and box plots, are used to visualize and interpret the data. Regression analyses are conducted to test for both types of convergence, with the results supporting unconditional convergence but not conditional convergence. The findings suggest that while there's evidence of convergence, other factors beyond initial growth rates influence the process. The report concludes by discussing the implications of these findings and the limitations of the study, highlighting the need for more detailed analysis with different variables and samples.

Introduction
The long term economic growth can be defined as the total market value of the total production
by an economy over the long period of time. There is no definitive time period to define the long
period. As famously said by Keyns “we are all dead”. In the long run, one of the most discussed
topic is the convergence of the economies. It is argued that the poor countries will grow faster
than the rich countries as the economic growth of the rich countries will grow at slow pace as
compared to the poor countries. Many scholars have argued that over a period of time, the poor
countries will be able to catch up with the rich countries. However for this to happen there are
certain conditions which needs to be fulfilled(Barro & Sala-i-Martin, 1992).
There are two type of convergence. The first one is the unconditional convergence, which states
that the poor countries will grow at a faster pace and in the long run, the per capita income or the
standard of living will be similar as the now developed countries. The second type of
convergence is the conditional convergence which states that the convergence of the poorer
countries will happen with the countries which have similar characteristics In other words,
convergence will not happen between all the poor and rich countries. There will be more than
one convergence points(Barro & Sala-i-Martin, 1992; Sarkar, 1997).
Background
The secondary data for the analysis has been extracted from the World Bank data base and GDP
per capita was used as the indicator of the growth(The World Bank Group, 2016).
Summary statistics of the all the countries included in the data set is given in the tables below.
Summary Statistics
1960
Summary Statistics, using the observations 1 - 226
for the variable GDP_1960 (107 valid observations)
Mean Median Minimum Maximum
492.51 241.56 40.537 3007.1
Std. Dev. C.V. Skewness Ex. kurtosis
610.40 1.2394 1.9628 3.3347
5% Perc. 95% Perc. IQ range Missing obs.
60.061 1950.8 396.45 119
1990

Summary Statistics, using the observations 1 - 226
for the variable GDP_1990 (187 valid observations)
Mean Median Minimum Maximum
6150.0 1614.6 95.188 84290.
Std. Dev. C.V. Skewness Ex. kurtosis
10400. 1.6911 3.4461 17.750
5% Perc. 95% Perc. IQ range Missing obs.
244.34 26871. 6739.0 39
2015
Summary Statistics, using the observations 1 - 226
for the variable GDP_2015 (213 valid observations)
Mean Median Minimum Maximum
15243. 5733.1 305.55 1.6729e+005
Std. Dev. C.V. Skewness Ex. kurtosis
23540. 1.5444 3.3591 15.601
5% Perc. 95% Perc. IQ range Missing obs.
577.52 56765. 16165. 13
From the data base, a sample of 10 countries was taken into consideration for the analysis. Out of
the selected 10 countries, 5 countries were taken with high GDP per capita and 5 with low per
capita income.
Rich countries includes: Australia, United Kingdom, United states, Japan and Canada
Poor countries includes: Uganda, Nepal, Nigeria , Rwanda and Burkina Faso

GDP for Poor Countries
The GDP of the poor countries is shown in the figure below, it shows that the GDP of Nigeria
has declined after 1990 which was increasing before that period. For all other countries that there
has been increase in the GDP with decline in 1990. This may be because of the recession in 1990
(Kannan, Scott, & Terrones, 2009; Unctad, 2008).
GDP_1960 GDP_1990 GDP_2015
0
100
200
300
400
500
600
700
800
900
Chart Title
Uganda Nepal Rwanda Niger Burkina Faso
GDP for Rich countries

GDP_1960 GDP_1990 GDP_2015
0
10000
20000
30000
40000
50000
60000
Chart Title
Australia United Kingdom Japan
United States Canada
For Rich countries also the graph shows that there has been increase in the GDP. The period
between the 1960 to early 1980 is considered as the Golden age of industrialization, where the
growh rate of these countries were very high. However in 1990 with the start of the Vietnam war
and the recession the GDP declined for majority of the economies.
Hilstogram
The results from the histograms are shown in the graph below.

0
0.0002
0.0004
0.0006
0.0008
0.001
0.0012
0.0014
0.0016
0.0018
0.002
-1500 -1000 -500 0 500 1000 1500 2000 2500 3000
Density
GDP_1960
relative frequency
N(492.51,610.4)
Test statistic for normality:
Chi-square(2) = 169.167 [0.0000]
Histogram of GDP 1960 indicates that most of the countries, the GDP per capita was very low,
except of some countries which are in the right hand side of the curve.

0
2e-005
4e-005
6e-005
8e-005
0.0001
0.00012
-20000 0 20000 40000 60000 80000
Density
GDP_1990
relative frequency
N(6150,10400)
Test statistic for normality:
Chi-square(2) = 388.730 [0.0000]
In 1990 the number of countries have increased, who have higher GDP, in this case also there are
some outliers such as the Luxemburg which has very high GDP per capita. Overall there has
been improvement in the GDP per capita.

0
1e-005
2e-005
3e-005
4e-005
5e-005
6e-005
-50000 0 50000 100000 150000
Density
GDP_2015
relative frequency
N(15243,23540)
Test statistic for normality:
Chi-square(2) = 530.831 [0.0000]
The increase in GDP per capita continue to increase in 2015. More countries are included in the
middle income group in this time period as compared to the previous period.
Box Plot
Results from the box plot are shown in the figures below.

-20
-10
0
10
20
Growth_rate_1960

-200
-100
0
100
200
300
Growth_rate_1990

-400
-200
0
200
400
600
Growhtrate_2015
Box plot of rich countries
Separate box plot for the rich countries are shown in the figures below.

7.5
8
8.5
9
9.5
10
10.5
11
l_Australia

7.5
8
8.5
9
9.5
10
10.5
l_UnitedKingdom