The paper "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics" by Francesco Caselli, Gerardo Esquivel, and Fernando Lefort addresses two major sources of inconsistency in existing cross-country empirical work on economic growth: correlated individual effects and endogenous explanatory variables. They propose a generalized method of moments (GMM) estimator to address these issues, which they apply to two key areas: testing the Solow model and estimating the determinants of growth. 1. **Testing the Solow Model**: The authors use panel data to estimate the Solow model, which assumes that countries converge to a steady-state level of per capita income at a constant rate. Using their GMM estimator, they find a convergence rate of approximately 10% per year, significantly higher than the commonly accepted 2-3%. This result contradicts the standard Solow model, which implies a much lower convergence rate. They also reject both the standard and augmented Solow models, as the augmented model, which includes human capital, does not fit the data well. 2. **Estimating the Determinants of Growth**: The authors apply their GMM estimator to a "determinants-of-growth" regression, which regresses the growth rate of output on various explanatory variables. They find that the estimated coefficients on these variables are different from those obtained using traditional methods, particularly in the implied convergence coefficient. The high convergence rate suggests that economies spend most of their time near their steady-state levels, with differences in observed levels primarily due to differences in steady-state levels rather than transitional paths. The paper concludes by discussing the theoretical implications of these findings, suggesting that the neoclassical growth model with physical capital may be more consistent with the empirical results. They also highlight the importance of open economy extensions of the standard model, which generally feature a higher convergence rate. The authors call for further research to explore these implications and refine the understanding of economic growth.The paper "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics" by Francesco Caselli, Gerardo Esquivel, and Fernando Lefort addresses two major sources of inconsistency in existing cross-country empirical work on economic growth: correlated individual effects and endogenous explanatory variables. They propose a generalized method of moments (GMM) estimator to address these issues, which they apply to two key areas: testing the Solow model and estimating the determinants of growth. 1. **Testing the Solow Model**: The authors use panel data to estimate the Solow model, which assumes that countries converge to a steady-state level of per capita income at a constant rate. Using their GMM estimator, they find a convergence rate of approximately 10% per year, significantly higher than the commonly accepted 2-3%. This result contradicts the standard Solow model, which implies a much lower convergence rate. They also reject both the standard and augmented Solow models, as the augmented model, which includes human capital, does not fit the data well. 2. **Estimating the Determinants of Growth**: The authors apply their GMM estimator to a "determinants-of-growth" regression, which regresses the growth rate of output on various explanatory variables. They find that the estimated coefficients on these variables are different from those obtained using traditional methods, particularly in the implied convergence coefficient. The high convergence rate suggests that economies spend most of their time near their steady-state levels, with differences in observed levels primarily due to differences in steady-state levels rather than transitional paths. The paper concludes by discussing the theoretical implications of these findings, suggesting that the neoclassical growth model with physical capital may be more consistent with the empirical results. They also highlight the importance of open economy extensions of the standard model, which generally feature a higher convergence rate. The authors call for further research to explore these implications and refine the understanding of economic growth.