Convergence and Modernisation

In a country panel since 1960, the estimated annual convergence rate for GDP is 1.7%, conditional on time-varying explanatory variables. With country fixed effects, the estimated convergence rate is misleadingly high. With data starting in 1870, country fixed effects are reasonable and the estimated convergence rate is 2.6%. Combining the two estimates suggests conditional convergence close to the iron-law' rate of 2%. With post-1960 data, estimation without country fixed effects reveals positive effects of GDP and schooling on law and order and democracy - consistent with the modernisation hypothesis. With post-1870 data, estimation without or with country fixed effects indicates modernisation.