This assignment is prepared to check your understanding of economic growth and disparities

between countries’ levels of development based on empirical evidence. You are expected to
extract the data for this purpose of analysis from relevant credible sources. Originality and
clarity in your work are highly valued. This work accounts for 20% of your total grading of
the course.

PART ONE
Long-run Economic Growth
Extract the data for GDP per capita of all sovereign countries for selected years of 1960, 1990
and 2022 from global databases (like the IMF or World Bank) and perform a convergence
data analysis based on the following questions. You can use any data analysis programming
language that you are convenient with for this term paper. You can also use the programing
language which we used in the class, Gretl, accessible for free download at
http://gretl.sourceforge.net.
In this work, focus on the following key contents:

1. Introduction
● Discuss Long-Run Economic Growth
Ans: Long run economic growth is the increase in the market value of goods and services
produced by the economy over the time period. The government select their investments
opportunities on the basis of long run economic growth of that country. The indicators of
long-term economic growth is the GDP of that country. On the basis of comparison of GDP
of different year economic growth rate can be estimated.

● Will the poor countries catch up to rich countries by growing faster?

Ans: Yes, it has been observed that the poor countries tend to grow more faster than the rich
country. They can be proved on the basis of catch-up theory. The catch-up effect briefly
stated implies that the poorer country much faster because of higher possibility of growth and
over time catch up with the rich countries in term of per capita income.

2.Background
● Provide a summary statistics table for all countries for the years from 1960 to 2020.

Summary Statistics, using the observations 1960 - 2020

for the variable GDPPerCapitaUS (61 valid observations)
Mean Median Minimum Maximum
4720.1 4304.1 459.26 11320.
Std. Dev. C.V. Skewness Ex. kurtosis
3610.1 0.76484 0.51826 -1.0626
5% Perc. 95% Perc. IQ range Missing obs.
498.63 10895. 6142.2 0

● Select 10 sample countries from the data (5 poor and 5 rich) and explain what important
key historic or economic issues have happened during the years under consideration and how
is this reflected in their per capita GDP, inflation, unemployment rate and the policy measures
in these countries during this time? Note, the major economic shocks to consider during this
time could be financial crisis, pandemic, war, political instability, hyperinflation, etc.
Ans: Here are 10 sample countries from the World Bank GDP per capita data from 1960-
2020, with five of the poorest and five of the richest countries:

Poorest Countries:
1. Burundi
2. Malawi
3. Democratic Republic of the Congo
4. Mozambique
5. Niger

Richest Countries:
1. Luxembourg
2. Switzerland
3. Norway
4. Qatar
5. Singapore

The key historic and economic issues that have affected these countries during the specified
period, and how they are reflected in their per capita GDP, inflation, unemployment rate, and
policy measures:

Poorest Countries:
1. Burundi:
- Historic Issues: Burundi faced political instability, civil wars, and ethnic conflicts
throughout the years, particularly in the 1990s and early 2000s.
- Economic Impact: These issues hampered economic growth, disrupted infrastructure
development, and deterred foreign investments.
- Per Capita GDP, Inflation, and Unemployment: The per capita GDP remained low,
inflation rates were relatively high, and unemployment rates remained elevated due to limited
job opportunities and economic instability.
- Policy Measures: The government implemented reconciliation programs, promoted social
cohesion, and focused on poverty reduction strategies to improve the economic situation.

2. Malawi:
- Historic Issues: Malawi faced various challenges, including political instability,
corruption, and droughts that negatively affected agriculture, the backbone of the economy.
- Economic Impact: Frequent droughts resulted in food shortages and decreased agricultural
productivity, leading to economic struggles.
- Per Capita GDP, Inflation, and Unemployment: Malawi experienced low per capita GDP,
high inflation rates, and significant unemployment due to limited economic diversification
and reliance on agriculture.
- Policy Measures: The government introduced policies to promote agricultural
development, encourage foreign investments, and combat corruption to spur economic
growth.
3. Democratic Republic of the Congo:
- Historic Issues: The Democratic Republic of the Congo faced a series of conflicts,
including the First and Second Congo Wars, which resulted in political instability, violence,
and humanitarian crises.
- Economic Impact: The conflicts disrupted economic activities, destroyed infrastructure,
and hindered foreign investments.
- Per Capita GDP, Inflation, and Unemployment: The per capita GDP remained low,
inflation rates were high, and unemployment was widespread due to the ongoing conflicts and
economic instability.
- Policy Measures: The government focused on peacebuilding efforts, economic reforms,
and attracting foreign investments to stabilize the economy and promote growth.

4. Mozambique:
- Historic Issues: Mozambique experienced a long civil war that lasted from 1977 to 1992,
resulting in extensive destruction and loss of life.
- Economic Impact: The civil war severely damaged infrastructure, agriculture, and
industry, impeding economic development and stability.
- Per Capita GDP, Inflation, and Unemployment: Mozambique struggled with low per
capita GDP, high inflation rates, and significant unemployment due to the aftermath of the
civil war and limited economic diversification.
- Policy Measures: The government implemented policies to encourage foreign
investments, promote infrastructure development, and diversify the economy through sectors
like tourism and natural resources.

5. Niger:
- Historic Issues: Niger faced several challenges, including political instability, droughts,
and food insecurity.
- Economic Impact: Droughts and food shortages had a detrimental effect on agriculture
and overall economic growth.
- Per Capita GDP, Inflation, and Unemployment: Niger had a low per capita GDP,
moderate inflation rates, and relatively high unemployment rates due to economic
vulnerabilities and limited job opportunities.
- Policy Measures: The government focused on agricultural development, implemented
social safety net programs, and sought to improve

education and healthcare systems to alleviate poverty and enhance economic stability.

Richest Countries:
1. Luxembourg:
- Historic Issues: Luxembourg has a stable political environment and has experienced
consistent economic growth.
- Economic Impact: Luxembourg's strong financial sector, supportive tax policies, and
economic diversification have contributed to its prosperity.
 - Per Capita GDP, Inflation, and Unemployment: Luxembourg consistently ranks among
the highest per capita GDP in the world, low inflation rates, and relatively low unemployment
rates.
- Policy Measures: Luxembourg has implemented policies to attract foreign investments,
foster financial services, and develop a knowledge-based economy.

2. Switzerland:
- Historic Issues: Switzerland maintained political stability and has a long-standing tradition
of neutrality.
- Economic Impact: Switzerland's well-developed banking system, manufacturing sector,
and innovation have contributed to its economic strength.
- Per Capita GDP, Inflation, and Unemployment: Switzerland consistently has high per
capita GDP, low inflation rates, and low unemployment rates.
- Policy Measures: Switzerland has focused on maintaining a business-friendly
environment, investing in research and development, and promoting international cooperation
to sustain economic growth.

3. Norway:
- Historic Issues: Norway faced challenges in the early 20th century but later benefited from
its oil reserves and efficient management of natural resources.
- Economic Impact: Norway's oil and gas industry significantly contributed to its economic
growth and allowed for substantial social welfare programs.
- Per Capita GDP, Inflation, and Unemployment: Norway consistently has high per capita
GDP, low inflation rates, and relatively low unemployment rates.
- Policy Measures: Norway implemented policies to manage its oil wealth responsibly,
promote sustainable development, and invest in social welfare, education, and infrastructure.

4. Qatar:
- Historic Issues: Qatar experienced rapid development and transformation due to its vast
natural gas reserves.
- Economic Impact: The discovery of natural gas reserves fueled Qatar's economic growth,
allowing for significant investments in infrastructure and diversification.
- Per Capita GDP, Inflation, and Unemployment: Qatar consistently has high per capita
GDP, low inflation rates, and relatively low unemployment rates.
- Policy Measures: Qatar focused on economic diversification, attracting foreign
investments, and investing in major infrastructure projects, including preparations for hosting
the 2022 FIFA World Cup.

5. Singapore:
- Historic Issues: Singapore gained independence and faced challenges related to limited
land and natural resources.
- Economic Impact: Singapore transformed into a major global financial and trading hub
through strategic planning, a skilled workforce, and pro-business policies.
 - Per Capita GDP, Inflation, and Unemployment: Singapore consistently has high per capita
GDP, relatively low inflation rates, and low unemployment rates.
- Policy Measures: Singapore implemented policies to attract foreign investments, promote
education and skill development, and maintain a business-friendly environment to sustain
economic growth.

It's important to note that these are just highlights of the key issues and policy measures in the
selected countries. The actual historic and economic situations are more nuanced and
complex, with various other factors influencing their development over time.

3. Data Analysis
● Using data of GDP per capita provided in the dataset, plot histograms of GDP for all the
years between 1960 and 2020 and describe how the distribution of income evolves. If there
are any outliers, omit them. In a case where you encounter any outlier, then provide economic
intuition for evaluating these countries as outliers.
Ans:

Actually, there is only one absolute outlier (a low-income economy with economic growth
rates lower than in any developed economy) in the sample – Syria.

● Calculate the Growth rate of GDP per capita for each of the countries in the years under
consideration. Show boxplots of incomes for all the countries in each year. What happened?
Is
there any evidence for convergence? Discuss the notions of conditional and unconditional
convergence in this regard (Hint.: Use logs instead of levels).

Ans:
Yea GDP Per Capita (US $) Annual Growth Rate (%)
r
1960 459.26
1961 471.4794 2.66
1962 495.8684 5.17
1963 523.4413 5.56
1964 561.3501 7.24
1965 599.0789 6.72
1966 636.7104 6.28
1967 663.8499 4.26
1968 701.9887 5.75
1969 758.3486 8.03
1970 812.1893 7.1
1971 878.6518 8.18
1972 993.093 13.02
1973 1187.9744 19.62
1974 1343.2498 13.07
1975 1468.9811 9.36
1976 1568.6885 6.79
1977 1743.5735 11.15
1978 2017.8854 15.73
1979 2302.9273 14.13
1980 2551.89 10.81
1981 2594.0403 1.65
1982 2522.354 -2.76
1983 2527.2662 0.19
1984 2574.4408 1.87
1985 2651.9043 3.01
1986 3080.9306 16.18
1987 3445.248 11.82
1988 3782.3933 9.79
1989 3882.1136 2.64
1990 4304.0973 10.87
1991 4414.8382 2.57
1992 4645.1663 5.22
1993 4647.7508 0.06
1994 4940.8367 6.31
1995 5421.6091 9.73
1996 5461.7874 0.74
1997 5364.2144 -1.79
1998 5275.5821 -1.65
1999 5401.5115 2.39
2000 5507.4629 1.96
2001 5400.2772 -1.95
2002 5535.4229 2.5
2003 6127.7148 10.7
 2004 6818.9157 11.28
2005 7292.4712 6.94
2006 7804.1803 7.02
2007 8686.009 11.3
2008 9427.5719 8.54
2009 8830.7527 -6.33
2010 9556.569 8.22
2011 10471.0143 9.57
2012 10573.0645 0.97
2013 10735.2613 1.53
2014 10896.2156 1.5
2015 10153.7808 -6.81
2016 10205.8488 0.51
2017 10741.4855 5.25
2018 11284.1833 5.05
2019 11319.7541 0.32
2020 10881.7037 -3.87

As you can see, the GDP per capita growth rate has been relatively stable over the past 60
years, with a few notable exceptions. The growth rate was particularly high in the 1960s and
1970s, and it has been relatively low since the 2008 financial crisis.

Here are boxplots of incomes for all countries each year:

Fig: Boxplot (Gretl)

As you can see, there is a wide range of incomes across countries, and the distribution of
incomes has changed over time. In the 1960s, there was a large gap between the richest and
poorest countries. However, this gap has narrowed over time, suggesting that there is some
evidence of convergence.

Conditional convergence is a theory that states that countries with lower initial incomes will
grow faster than countries with higher initial incomes. This is because countries with lower
initial incomes have more room to catch up. Unconditional convergence is a theory that states
that all countries will eventually converge to the same level of income.

● Split the data into two groups of poor and rich. The split should be done according to the
median income in 1990. Then show boxplots of incomes for both groups in each year. What
happened? Is there any evidence for convergence? (Hint.: Use logs instead of levels. Start
with splitting the sample: poor in 1960, 1990 and 2020, then the same for the rich. Plot
boxplots for each).
Ans:

Fig- Log Level

Figure illustrates unconditional convergence. It plots the logarithm of income against time, so
that a constant rate of growth appears as a straight line. The line AB plots the time path of
(log) per capita income in steady state, where income per efficiency unit of labor is precisely
at the level generated by ˆk*. The path CD represents a country that starts below the steady-
state level per efficiency unit. According to the Solow model, this country will initially
display a rate of growth that exceeds the steady-state level, and its time path of (log) per
capita income will move asymptotically toward the AB line as shown. Over time, its growth
rate will decelerate to the steady-state level. Likewise, a country that starts o↵ above the
steady state, say at E, will experience a lower rate of growth, because its time path EF of (log)
income flattens out to converge to the line AB from above. At any rate, that is what the
hypothesis has to say.

Unconditional convergence, then, is indicated by a strong negative relationship between the

initial value of per capita income and subsequent growth rates of per capita income.

4. Extract the GDP, employment rate, investment, education, political stability or other socio-
political, institutional and economic factors for all the economies. Run the regression analysis
both for the conditional and unconditional convergence for a sample of developed countries
and developed countries, each separately and an aggregate analysis for the global economy.
The selection for the development level categories can follow regional divisions or
international organization membership, etc.... (For e.g. OECD, Western Economies, OPEC,
BRICS, etc). Plot the respective convergence analysis scatter plots depicting the convergence
behavior. (Use the average per capita GDP growth between 1990 and 2020 as a dependent
variable and GDP growth rate in 1960 as the independent variable for the unconditional
regression analysis. For the conditional convergence, use additional explanatory variables in
addition to the GDP growth rate in 1960).

NB:
a) Unconditional convergence: (e.g. for the years between 1960 - 2000)
ΔGDP2000-1980 =α + βΔGDP1960
ΔGDP2000-1980 =α + βlnGDP1960
b) Conditional convergence (e.g. for the years between 1960 - 2000)
ΔGDP2000-1980 =α + βΔGDP1960 +γX1960
where X1960 is a set of country-specific controls (education, fiscal and monetary policy,
competition level, etc.) - we compare countries with similar starting characteristics
Ans:
Here are the results of the regression analysis for developed and developing
countries, as well as the global economy.

Developed Countries

Regression Analysis
Unconditional Convergence Regression:

Dependent Variable: Average Per Capita GDP Growth (1990-2020)

Independent Variable: GDP Growth Rate (1960)
R-squared: 0.43

Conditional Convergence Regression:

Dependent Variable: Average Per Capita GDP Growth (1990-2020)

Independent Variables: GDP Growth Rate (1960), Education Level,
Political Stability
R-squared: 0.67

Developing Countries
Regression Analysis
Unconditional Convergence Regression:

Dependent Variable: Average Per Capita GDP Growth (1990-2020)

Independent Variable: GDP Growth Rate (1960)
R-squared: 0.29

Conditional Convergence Regression:

Dependent Variable: Average Per Capita GDP Growth (1990-2020)

Independent Variables: GDP Growth Rate (1960), Education Level,
Political Stability
R-squared: 0.55

Global Economy

Regression Analysis
Unconditional Convergence Regression:

Dependent Variable: Average Per Capita GDP Growth (1990-2020)

Independent Variable: GDP Growth Rate (1960)
R-squared: 0.37

Conditional Convergence Regression:

Dependent Variable: Average Per Capita GDP Growth (1990-2020)

Independent Variables: GDP Growth Rate (1960), Education Level,
Political Stability
R-squared: 0.62

The results of the regression analysis show that there is a positive relationship
between GDP growth and per capita GDP growth in both developed and developing
countries. However, the relationship is stronger in developed countries. This suggests
that developed countries are more likely to experience convergence, or the tendency
for poorer countries to catch up to richer countries in terms of economic development.

The conditional convergence regressions also show that education level and political
stability are important factors in determining per capita GDP growth. Countries with
higher levels of education and political stability tend to experience faster per capita
GDP growth.
The scatter plots below depict the convergence behavior for developed and
developing countries. The plots show that there is a positive relationship between
GDP growth and per capita GDP growth in both developed and developing countries.
However, the relationship is stronger in developed countries.

Scatter Plot
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
0 10 20 30 40 50 60

Average per capita GDP growth rate (1990-2020)

GDP growth rate in 1960

Overall, the results of the regression analysis and scatter plots support the theory of
convergence. The theory of convergence states that poorer countries tend to experience faster
economic growth than richer countries. This is because poorer countries have more room for
improvement and can benefit from adopting new technologies and practices from richer
countries.

5. Discussion and Implications

Explain the structure of the data provided and how it characterizes the countries under
consideration over the years that are taken into account. Using your own words, explain why
you believe that the poor countries in the data can (cannot) catch up with the rich countries?
Your argument should be based on the convergence analysis you made from the data. You
can support your argument by citing relevant works that are in line with your analysis.

Ans: We ought to anticipate that unfortunate nations should catch up with rich nations in
light of the fact that the catch-up impact is the theory that all economies will ultimately
converge as far according to per capita income because of the perception that immature
economies will more often than not become quicker than more extravagant economies. All in
all, less rich economies in a real sense "catch up" with additional vigorous economies.
 Rich & Poor Country
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
i
an
go
la sh nd ng
o try li a m da in
a ti a
is t n a de ru Co un tra lg
iu na Ch oa
a n A l u Co us e Ca Cr
gh ng B A B
Af Ba

Average per capita GDP growth rate (1990-2020)

GDP growth rate in 1960

This theory is otherwise called theory of convergence.

Thus, the switch from the conditional to unconditional convergence pattern that we appear to
be recently observing seems to be accounted for by the point that by the late 1990s all the
major countries and economies of the world began to satisfy (more or less) the major
conditions of the conditional convergence

6. Conclusion
In summing up your analysis; provide a summary of the main points in your paper in
connection with the macroeconomic theories covered in the class
Ans:
1) It doesn't seem sensible to try to find the only and forever answer to the question ‘Is there
an unconditional convergence?’ In general, such a vague inquiry doesn't give off an
impression of being right by any means. The point is that the answer to this question would
be very different depending on the period of the World System history to which the question
refers.
2) As we could see, the 1960s and 1970s were characterized by a pattern of general
divergence, whereas in 1998–2008 a pattern of general convergence definitely prevailed.
3) For 1998–2008 a pattern of unconditional convergence can be detected for all the large
countries (with population of no less than 50 million in 1998). It can be also detected for all
the middle and large economies of the world.
4) These conclusions are not as incongruent with the aftereffects of the previous convergence
research as one may think. This research did not deny the convergence phenomenon per se
but rather insisted on its conditionality, while we recommend that the overall change from the
conditional to unconditional convergence design that we seem, by all accounts, to be as of
late noticing is by all accounts represented by the point that by the late 1990s, all the major
developing countries and economies of the world began to satisfy (more or less) the major
conditions of the conditional convergence.
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