The Paper (Postscript)
September 26, 1996 -- Version 4.00
The recent literature on convergence has departed from the earlier literature by focusing on the shape of the production function and the rate at which an economy converges to its own steady state. This paper uses advances from the recent literature to look back at the question that originally motivated the convergence literature: what will the steady state distribution of per capita income look like? Several results are highlighted by the analysis. First, ignoring changes in technology levels over time, the long-run distribution is likely to be broadly similar to the 1990 distribution; the main exception is at the top of the distribution, where a number of NICs and industrialized countries continue to catch up to or even overtake the U.S. Second, differences in total factor productivity levels across economies are substantial---roughly the same magnitude as differences in per capita incomes. Third, TFP convergence would result in substantial changes in the income distribution. Finally, there is little reason to expect that the U.S. will maintain its position as world leader in terms of output per worker.