Growth, interrupted: How crises delay global convergence

Abstract

During a major crisis, the transitional dynamics of conditional convergence are unlikely to apply. In this paper, we introduce a Markov chain approach that integrates the study of crises and convergence. We allow upwards and downwards mobility to change when a country enters a crisis regime. We find that conflict and debt crises help explain the persistence of low relative income, and that the convergence process has changed over time. Faster global convergence in the early 2000s can be attributed partly to fewer and shorter crises, so the multiple shocks since the late 2010s are likely to have slowed income convergence.