|Home > Per Capita Income, Human Capital, and Inequality Convergence: A Latent-Variable Approach|
The purpose of this paper is to empirically analyze determinants of income-level convergence. Specifically, the effect of human capital on per capita income is estimated for 22 countries of the organization for Economic Cooperation and Development (OECD). Additionally, the effects of openness in international trade and investment and government expenditures on per capita income are estimated and evaluated. Human capital is modeled as a latent variable, and results indicate that it is a significant factor in explaining the variation of per capita income levels among the OECD countries. Further, the entire time path of human capital is utilized to explain deviations in per capita income.