Distribution dynamics and cross-country convergence: A new approach

Distribution dynamics is a method for studying the evolution in time of an entire cross-section distribution and has been initially employed to assess cross-country convergence of per capita incomes. It has subsequently seen a widespread application in many different Economic areas. When describing the la,v of motion of the distribution as a Markovian stochastic process, working in a discrete state-space set lip has several advantages, but the arbitrary discretisation of a continuous state-space process has the undesired effect of removing the Markov property. This paper outlines a rigorous method for discretising a continuous state-space Markov chain. The method is then applied to the distribution of per capita income across countries to reassess the (non-) convergence phenomenon. It is found that the long run polarisation of per capita incomes across countries emerges even more dramatically than in previous studies.