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Theory,
History and Evidence of Economic Convergence in Latin America
Paola Barrientos
December
2007
Economic
convergence exists when two or more economies tend to reach a
similar level of development and wealth. The study of
convergence is an important topic because besides being useful
for the debate between different theories, it can respond
several inquiries such as if the distribution of income between
economies has become more equal over time and if poor economies
are catching up with the rich. Latin American countries are
characterized by having few language barriers, similar culture,
religion and common history. So convergence could be expected.
However, literature about convergence in Latin America is scarce
and preliminary analysis shows that divergence exists in the
region. The thesis tries to fill in the gap by covering
theoretical, historical and statistical evidence of convergence
in the region during 106 years, from 1900 to 2005. The thesis
uses a neoclassical growth model based on Solow and Ramsey
models. After revising the economic history of 32 countries,
several groups were identified and convergence was expected to
occur. Different concepts of convergence are tested inside each
group through graphs, single cross section regressions and panel
data estimations. In general, the results show a success with
the grouping. However, the groups that converged under all
concepts are those composed by countries that have succeeded in
industrializing and/or were able to build strong institutions
that could promote welfare and economic growth in a
globalization context. The speed of convergence for those
countries is around 2%. It is also found that integration
processes have not helped to accelerate convergence.
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