Testing Convergence And Divergence: The Data From Greece

Abstract

The convergence hypothesis is a popular tenet in modern discussions in macroeconomics and regional economics. It derives from the very fundamental properties of the neoclassical single-sector growth model; and its assumption of diminishing returns to scale. Following this theoretical framework a number of empirical tests (or unconditional or conditional -convergence) has been developed. This paper tests unconditional and conditional -convergence for the Greek economy. Three issues are being considered: (i) if there is regional convergence, (ii) if there is a North-Southern divide, (iii) if Greece is converging with the other economies taking part in the European integration project. Our empirical results reject the convergence hypothesis in all case. These findings, together with similar findings for many other economies, post significant problems for the theoretical assumptions of the neoclassical growth model with exogenous technical change.