Convergence analysis: a new approach

Economic growth and convergence is one of the most discussed fields in economics, as the long-run growth basically determines the welfare of countries. On the basis of neoclassical growth models, countries with lower GDP per capita will tend to grow faster than richer ones. However, convergence is not always confirmed. This means that economies are converging but the steady-state level is not always common, so countries may converge to different / own level of steady-states. At the same time, the term ‘convergence’ can be interpreted by different ways. Therefore, multiple methods have to be applied to measure processes of convergence or divergence in a comprehensive way. In this paper an indicator, called omega is presented in order to calculate convergence/divergence by a new approach. Omega is an adjusted weighted standard deviation of economic development (catching-up), which can be calculated on a single or multivariate basis. The paper is organized as following. Section 1 briefly describes the definition and methodology of convergence. Section 2 outlines the model. In section 3 different types of convergence indicators are analysed and compared. Section 4 concludes.