Output, Growth, and Convergence in a Creative Region : An Analysis of Some Measurement Issues

We study some measurement issues that arise when analyzing the long run behavior of the jth creative region's time t log output per creative class member (y_j(t)) when this region is part of an aggregate economy of j = 1, …, N creative regions. We focus first (second) on absolute (relative) convergence. In the absolute (relative) convergence case, the N creative regions are similar (dissimilar) in that they all have the same (different) balanced growth path (BGP) level of log output per creative class member denoted by y^BGP (y_j^BGP). In the absolute convergence case, we analyze how to estimate the speed of convergence parameter (σ) and then discuss the relationship between the variance of y_j(t) and that of y_j(0). In the relative convergence case, we study the error associated with estimating σ using the methodology of the absolute convergence case. Finally, suppose y_j^BGP=a bX_j where X_j is an explanatory variable such as creative capital and a and b are positive constants. Here, we study how to estimate b from our knowledge of the coefficients of a related cross-region growth regression