A comparison of growth convergence between the Gross Domestic Product and the Index of Sustainable Economic Welfare or Genuine Progress Indicator.

While the GDP measures economic output, it often gets treated as a proxy of welfare. To better reflect welfare the Index of Sustain- able Economic Welfare and the Genuine Progress Indicator, united under the name of Green GDP, were created. This thesis tests for the β- and σ-convergence of the GDP and the Green GDP by using methods from the convergence growth literature. It is hypothesized that the GDP and Green GDP differ in their convergence. For the β-convergence section we consider unconditional and conditional β- convergence. To make the t-test in this section more reliable we bootstrap the t-distribution. We find both unconditional and conditional β-convergence for the GDP, but not for the Green GDP. In the σ- convergence section we see if the sample variance changes over time with an F-test of equality of variance and by regressing the sample variance on a trend. We also bootstrap the F-distribution. Further- more we perform an adjusted Dickey-Fuller test to see if the sample variance is stationary. The results in this section are influenced by the unbalanced shape of the data. We do not conclude σ-convergence or divergence for either the GDP or Green GDP. Our final conclusion is that there is a difference between the GDP and the Green GDP in terms of their β-convergence, and thus that using the GDP as a proxy for welfare can be erroneous and propose more use of the Green GDP when the goal is to discuss welfare.