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We ask whether failure to control for research and development (R&D)
activity in an output convergence regression affects the coefficient estimates of
initial output. We focus on output convergence to an economy’s own steady-state growth path using time series regression framework and convergence
across economies using panel estimation. We use data for the 30 member countries of the Organization for Economic Co-operation and Development
(OECD) and US state-level real per capita output and per capita patents.
The results indicate that after controlling for R&D activity the
coefficient estimates increase in magnitude (in absolute terms) and in significance levels.
Furthermore, the results are not sensitive to the dataset used or the estimation
procedure.
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