A contribution to the empirics of convergence in real GDP growth: The role of financial crises and exchange-rate regimes

Abstract

This paper investigates the convergence in real Gross Domestic Product (GDP) growth focusing on the impact of financial crises (i.e. banking crises, currency crises and debt crises) and nominal exchange rate regimes (i.e. fixed, intermediate and flexible) on convergence. To that end, we compute four convergence indicators (s-convergence, g- convergence, absolute b-convergence and conditional b-convergence), for 163 countries classified into four income groups during the 1970-2011 period. Results suggest that: (i) There is evidence in favor of β-convergence and β-convergence only for high income countries; (ii) absolute and conditional β-convergence are presented in each of the four income groups of countries under study; (iii) exchange-rate regimes seem to play some role in upper-middle and lower-middle income countries; and (iv) financial crises have a negative and significant impact on GDP growth independently of the level of income of countries.