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The Econometrics of Convergence

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Abstract

The presence or absence of convergence between rich and poor countries represents one of the most important questions in the new growth economics. New growth theories have been explicitly designed to explain forms of divergence which do not appear in their neoclassical counterparts. Despite substantial empirical work on convergence, there is no consensus as to whether it is present in cross-country data. This chapter surveys the econometrics of convergence as well as the range of empirical claims that have appeared. Particular attention is given to the relationship between statistical versus economic notions of convergence. We argue that the disparities in claims across empirical studies can to some extent be understood as reflecting inadequate attention to the relationship between the statistical and economic notions.

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... However, the number of countries included in the analyses varies widely and ranges from the teens to close to the full complement of countries, so both the ability to detect clubs and the number of clubs found varies widely, making generalized conclusions difficult (Alfo et al. 2008). Despite the finding of multiple clubs, most methods cannot distinguish between multiple equilibria that are transient states reflecting different initial starting positions along a singular trajectory towards one long-run equilibrium, or actual alternative states (Durlauf et al. 2009;Owen et al. 2009;Galor 2010). It is not uncommon for researchers to describe these multiple equilibria as being stationary (Azariadis and Drazen 1990), which suggests an expectation for long-term growth behaviour akin to a fixed point attractor and single point equilibrium dynamics (though see El-Gamal and Ryu 2013). ...
... If economies fall into discontinuous size classes, and furthermore, if those size classes are robust over time, then it suggests that 1. the processes that structure GDP vary across spatial and temporal scales (i.e. are not scale invariant); and 2. the perspective offered by the discontinuity hypothesis on scaling in the global economy could drive novel insights into disparities between poor and wealthy countries. Discontinuity analysis as methodological choice has benefits, including that the methods are not sensitive to either measurement error or missing data (Nash et al. 2014a), unlike the convergence literature where measurement error can have a significant impact on results (Durlauf et al. 2009). Nor are there issues of initial position, whereby the selection of the year used as the initial baseline for calculation of convergence can change results, all common issues in the convergence literature (Bloom et al. 2003;Canova 2004). ...
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Investigation of economies as complex adaptive systems may provide a deeper understanding of their behavior and response to perturbation. We use methodologies from ecology to test whether the global economy has discontinuous size distributions, a signature of multi-scale processes in complex adaptive systems, and we contrast the theoretical assumptions underpinning our methodology with that of the economic convergence club literature. Discontinuous distributions in complex systems consist of aggregations of similarly-sized entities, separated by gaps, in a pattern of non-random departures from a continuous or power law distribution. We analysed per capita real GDP (in 2005 constant dollars) for all countries of the world, from 1970 to 2012. We tested each yearly distribution for discontinuities, and then compared the distributions over time using multivariate modelling. We find that the size distribution of the world’s economies are discontinuous and that there are persistent patterns of aggregations and gaps over time. These size classes are outwardly similar to convergence clubs, but are derived from theory that presumes that economies are complex adaptive systems. We argue that the underlying mechanisms, rather than emerging from conditions of initial equivalence, evolve and operate at multiple scales that can be objectively identified and assessed. Understanding the patterns within and across scales may provide insight into the processes that structure GDP over time.
... However, the sample size varies widely and ranges from the teens to close to the full complement of countries, so the ability to detect clubs and the number of clubs represented by the data varies widely, making generalized conclusions difficult (Alfo et al. 2008). Despite the finding of multiple clubs, most methods cannot distinguish between multiple equilibria that are transient states reflecting different initial starting positions along a singular trajectory towards one long-run equilibrium, or actual alternative states (Durlauf et al. 2009;Owen et al. 2009;Galor 2010a). It is not uncommon for researchers to describe these multiple equilibria as being stationary (Azariadis & Drazen 1990), which suggests an expectation for long-term growth behaviour akin to a fixed point attractor and single point equilibrium dynamics (though see El-Gamal and Ryu, 2013). ...
... Discontinuity analysis as methodological choice has benefits, including that the methods are not sensitive to either measurement error or missing data (Nash et al. 2014a), unlike the convergence literature where measurement error can have a significant impact on results (Durlauf et al. 2009). Nor are there issues of initial position, whereby the selection of the year used as the initial baseline for calculation of convergence can change results, all common issues in the convergence literature (Bloom et al. 2003;Canova 2004). ...
Thesis
This dissertation is focused on scaling and resilience of complex adaptive systems, including ecological and economic systems. In particular it is concerned with the textural discontinuity hypothesis (hereafter called the discontinuity hypothesis), which describes how the distinct spatial and temporal scales of processes that shape systems in turn generates distinct spatial and temporal scales in system structure and entities interacting with that structure; the cross-scale resilience model, which uses the discontinuity hypothesis as the foundation of a theory about specific system features that drive ecological resilience; panarchy and adaptive cycles, which articulate how system dynamics at the above-mentioned scales change over time and how feedbacks across those scales informs system behavior; and the notion of spatial regimes in ecological structure. I both expand existing frameworks to accommodate non-ecological complex systems, and test my hypotheses in a variety of economic and ecological systems. ^ Some general findings of my analyses are that the objective identification of scale domains in many types of complex systems can be useful for understanding how pattern and process shape structure and impact system-level resilience. Economic systems, for example, as expressed by Gross Domestic Product, fall into distinct, non-random size classes that suggest there are scale-specific processes generating basins of attraction. I expand the cross-scale resilience model to incorporate abundance, a species and community attribute that is mechanistically related to the provision of function and resilience. The coral reef fish communities of the Hawaiian archipelago were analysed to see if their cross-scale resilience differed amongst coral dominated and macroalgal and turf dominated reefs, with the surprising result that the macroalgal-turf communities were more resilient. In a twist on classic regime shift theory, which typically focuses on temporal shifts within a single ecosystem, I used a novel information theory method to successfully detect spatial boundaries and transition zones between types of ecological systems by using animal community data. Finally, I argue why the adaptive cycle may be a result of endogenous processes in complex adaptive systems, and is not just a convenient metaphor for cycling behavior and dynamics.
... One of the main areas of interest in economic growth theory in the last decades is the study of the differences in economic output across regions and over time. This topic that has been broadly labeled as economic convergence has several interpretations and definitions, see Durlauf et al. (2009). Thus, β-convergence, see Baumol (1986), DeLong (1988), Barro (1991), Mankiw et al. (1992), refers to the concept of catching up. ...
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This paper proposes a novel test for the hypothesis of economic convergence. We extend the standard definition of convergence based on the parity condition and say that two economies converge if the time series of economic output are positively cointegrated and cotrended. With this definition in place, our main contribution is to propose a test of positive cointegration that does not require estimation of the cointegrating relationship, but is able to differentiate between positive and negative cointegration. Once the possibility of positive cointegration is established in a first stage, we test for cotrending in a second stage. Our sequential proposal enjoys an excellent performance in small samples due to the fast convergence of our novel test statistic under positive cointegration. This is illustrated in a simulation exercise where we report clear evidence showing the outperformance of our proposed method compared to existing methods in the related literature that test for economic convergence using cointegration methods. The results are particularly strong for sample sizes between 25 and 50 observations. The empirical application testing for economic convergence between the G7 group of countries over the period 1990–2022 confirms these findings.
... En consecuencia, un país crece más rápidamente (lentamente) cuando el nivel de su producto por trabajador está por debajo (encima) del nivel correspondiente a su sendero de crecimiento balanceado. Los artículos mencionados dieron lugar a una vasta literatura econométrica que no rechazó la hipótesis de convergencia condicional (ver, especialmente, Barro y Sala-i-Martin, 2004, capítulo 12), pero que no ha estado exenta de críticas (Dowrick y DeLong, 2003;Durlauf et al., 2005Durlauf et al., y 2009Johnson y Papageorgiou 2020). ...
Article
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En este artículo revisitamos la evidencia empírica de la hipótesis de la convergencia absoluta en el crecimiento entre países en 1950-2019, poniendo el foco en el producto por trabajador. También ponemos a prueba la hipótesis de Rodrik (2013) de convergencia absoluta en el producto por trabajador en la industria manufacturera utilizando una base nueva construida por los autores, que por primera vez lo mide en dólares de igual de poder compra, para así poder investigar su relación con la convergencia en el producto por trabajador en la economía en su conjunto en 1970-2018. Encontramos evidencia robusta de convergencia absoluta en el producto por trabajador de la economía en su conjunto a partir del año 2000 y rechazamos sistemáticamente la hipótesis de Rodrik de convergencia absoluta en la industria manufacturera sin convergencia en la economía en su conjunto.
... We have produced preliminary evidence, based on conditional convergence estimates, showing this in the Appendix. Further systematic econometric analysis is needed to shed light on which region-specific characteristics matter (seeDurlauf et al, 2009, on the methodological challenges). ...
Article
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Research on income inequality in developing economies has scarcely looked at the regional dimension. This is important, as progress in reducing income inequality at national level can only be partially successful if a country consists of very unequal regions alongside relatively equal ones. Using newly assembled Luxemburg Income Study data, we study the evolution of income inequality within Egyptian regions during 1999-2015. The analysis offers three findings. First, income inequality has generally increased. Second, regional differences in income inequality tended to decrease, but less unequal regions are converging to similar levels of inequality of more unequal regions. Third, there has been a decrease in the income share of the bottom 40% and an increase in the proportion of people living below 50% of median income. Hence, geographically diffused progress on the first two targets of SDG 10 depends on reversing these trends.
... It was coined byKaldor (1961) in an early essay on economic growth. 3 SeeBarro (1991Barro ( , 1997 Sala-i-Martin (1992, 2005) and Sala-i-Martin (1997), plusDurlauf et al. (2009aDurlauf et al. ( , 2009b. 4 These benefits must be qualified by acknowledging that they do not occur in a vacuum-in the absence of industrialization, urbanization may be more detrimental than helpful to economic growth(Duranton 2014;Glaeser and Ghani 2015; Glaeser and Xiong 2017;Henderson and Turner 2020).5 Hägerstrand was a geographer whose bare skeleton is analogous to what the economistKaldor (1961) labeled stylized facts-both are about the starting point for building theory used to predict behavior and/ or outcomes within human systems.Content courtesy of Springer Nature, terms of use apply. Rights reserved. ...
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This paper raises a fundamental question about Sub-Saharan Africa: has urbanization there been accompanied by improvements in personal wellbeing? It then proceeds to open an investigation focused on child health—in the form of child growth failure, including ( i ) stunting; ( ii ) wasting; and ( iii ) underweight—that addresses the question. The main contribution of the work is to reconcile an array of data, collected across different spatial scales and over different timeframes, in a manner that enables some preliminary insight into the relationships explored. Evidence derived from the analysis suggests that the wave of urbanization breaking across Sub-Saharan Africa is associated with improvements in wellbeing, a finding that is qualified by need for further research.
... 1 Given the paramount importance of the convergence hypothesis for the literature of economic growth and development, a large number of empirical frameworks and convergence definitions have been suggested. Durlauf et al. (2009) andRey &Le-Gallo (2009) discuss the econometrics of convergence and the variety of empirical frameworks that have been proposed since the early 1990s. In this section, we briefly outline some of these frameworks. ...
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This article studies the evolution of per-capita income disparities and spatial dependence across 77 provinces of Thailand over the period 1995–2017. Results show that – on average – regional income disparities are decreasing over time and initially poor provinces are catching up with rich provinces, indicating the presence of sigma and beta convergence. However, when we study the evolution of disparities – beyond the average – we reject the hypothesis that all provinces would eventually converge to a common long-run equilibrium. The evolution of these disparities suggests the existence of three local equilibria or convergence clubs. Further analyses based on global and local indicators of spatial association reveal significant spatial dependence in the evolution of disparities and the location of the convergence clubs. This article concludes arguing that an excessive focus on global or average assessments can be incomplete, and that spatial dependence has played a significant role in the formation of local convergence clubs. Furthermore, as different clubs may need different policy treatments, there is no one-size-fits-all territorial policy for reducing regional disparities in Thailand.
... https://orcid.org/0000-0003-4299-9599 ENDNOTES 1 On an average, Barro's "iron law" of the 2% rate of convergence has been found to be supported by studies on regional convergence in rich countries, but for poor countries the rate of convergence is much slower. 2 The literature addressing regional and cross-country convergence is large, (see Durlauf et al., 2009). On the one hand, empirical contributions using a wide range of methods have sought to understand differences in growth performance using the neoclassical and endogenous growth models. ...
Article
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There is a growing literature on the importance of persistent regional inequalities in developing countries, with evidence that the lack of convergence in incomes across regions is associated with a rise in conflict and social unrest. However, there is a relative paucity of literature on the stochastic characteristics of gross domestic product at the sub-national level. In this paper we identify new stochastic properties of Indian states' gross domestic product between 1960 and 2019 using a fractional stochastic convergence approach. We test for fractional stochastic convergence in relative incomes in order to identify high persistence and mean reversion. Interval estimates of the largest autoregressive coefficient for the relative incomes of Indian states are wide, thus including many alternatives that are persistent. Interval estimates of the half-life of relative income shocks suggest that in several cases shocks die out within 0–10 years. Finally, we estimate a fractionally integrated model and obtain mixed evidence of mean reversion and non-stationarity, with six out of 16 states experiencing mean reversion. These results are highly encouraging and contradict earlier studies which show long-term divergence and polarization of regional incomes across Indian states, and are thus of great relevance to policy-makers.
... Economists and philosophers have long identified causal mechanisms between inequality and economic growth (Galor and Zeira 1993;Kuznets 1955;Piketty 2014). This relationship has recently gained particular attention due to increasing interest in the longrun impact of income, wealth, and health inequalities on a country's growth outcomes (Alvaredo et al. 2018;Anand and Segal 2008;Bourguignon and Morrisson 2002;Clarke et al. 2002;Durlauf et al. 2009;Gabaix et al. 2016;Ho and Heindi 2018;Kuhn et al. 2020;Milanovic 2018). The recent interest in the relationship between inequality and growth has also been aided by the greater availability of international inequality statistics, especially the Gini measure, 1 but also more recently with income percentile shares as an additional measure of inequality (available in the World Inequality Database 2019). ...
Book
Understanding the relationship between income inequality and economic growth is of utmost importance to economists and social scientists. In this paper we use a Bayesian structural vector autoregression approach to estimate the relationship between inequality and growth via growth and inequality shocks for two large economies, China and the USA, for the years 1979–2018. We find that a growth shock is inequality-increasing, and an inequality shock is growth-reducing. We also find, however, that the sizes of the effects of these shocks are very small, accounting for under 2 per cent of the variance for both countries. Finally, we also find that the effects of the shocks dissipate within ten years, suggesting that the effects of these shocks are a short-term phenomenon.
... Further research, however, is still needed. It has been widely emphasized in the literature that the classical convergence approach could suffer from an excessive focus on the behavior of the average economy and the existence of a common long-run equilibrium (Durlauf & Quah, 1999;Durlauf, Johnson, & Temple, 2009;Magrini, 2009). As highlighted by Johnson and Papageorgiou (2020) in their recent survey of the convergence literature across countries, heterogeneity and persistent initial conditions are a pervasive feature of the process of growth and development. ...
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This paper studies the evolution of regional disparities in labor productivity, capital accumulation, and efficiency across Indonesian provinces over the 1990–2010 period. Through the lens of a nonlinear dynamic factor model, we first test the hypothesis that all provinces would eventually converge to a common steady‐state path. We reject this hypothesis and find that the provincial dynamics of labor productivity are characterized by two convergence clubs. We next evaluate the dynamics of the proximate sources of labor productivity and find some mixed results. On the one hand, physical and human capital accumulation are characterized by three and two convergence clubs, respectively. On the other hand, efficiency is characterized by a unique convergence club. The paper concludes by suggesting that, based on the provincial composition of each club and the common low level of efficiency across Indonesia, considerable improvements in both capital accumulation and efficiency are still needed to reduce regional disparities and accelerate productivity growth.
... However, the empirical evidence regarding unconditional convergence across the worldwide distribution of income per capita is not supportive (Barro 1991;Mankiw, Romer, and Weil 1992;Islam 2003;Acemoglu 2009). The literature has therefore focused on conditional convergence and club convergence, arguing that countries tend to converge towards different steady states (Quah 1993a(Quah , 1996Durlauf, Johnson, and Temple 2009). ...
Article
Unconditional convergence across countries worldwide is typically rejected in terms of GDP per capita. But when focusing on a specific internationally competitive industry, such as manufacturing, rather than the overall economy, unconditional convergence has been found to hold. As the epitome of competition and globalization, this paper uses the performance of national soccer teams as a further test case. We rely on data of more than 25,000 games between 1950 and 2014 and find clear evidence of unconditional ß- and σ-convergence in national team performance, as measured either by win percentages or goal difference. We argue that transfer of technologies, skills and best practices fosters this catch-up process. But there are limits: we show that good teams from Africa and Asia are failing to close the gap with top European or South American teams for reasons that are analogous to the 'middle income trap'. Lessons for other sectors include the virtues of internationally transferable human capital as well as the mixed blessings of regional integration for worldwide convergence. © 2018
... Additionally, we explicitly tackle the general issue of parameter heterogeneity in growth regressions. Indeed, considerable evidence for parameter heterogeneity has been found in cross-countries studies (Durlauf et al., 2009). Applying a quantile approach to convergence analysis makes it possible to use each estimated quantile to describe a particular segment of the conditional distribution of income growth (Cunningham, 2003;Barreto and Hughes, 2004); Canarella and Pollard, 2004;Foster, 2008;Ram, 2008;Dufrenot et al., 2010). ...
Article
The estimates for the human capital effect in cross‐country growth regressions have been subject of considerable controversy. We argue that human capital is intrinsically a multidimensional construct. We construct human capital measure by combining available alternative proxies via confirmatory factor analysis. Using panel data endogenous quantile regression methods we analyse the whole conditional growth distribution by simultaneously accounting for the potential endogeneity of human capital and country‐specific effects. Our results conform to theoretical expectations and we are able to demonstrate the beneficial effect of both the measurement approach and the endogeneity correction on the derivation of theoretically consistent estimates.
... We follow an empirical strategy to test for convergence widely used in economics (e.g., Durlauf et al., 2009) but considering that the variable under analysis is a prevalence rate. In this case, let p t ∈ (0, 1) be the rate of overweight or obesity. ...
Article
We exploit recently published data to evaluate the long-run evolution of overweight and obesity rates among European economies between 1975 and 2016. We find that overweight rates for both females and males converge in Europe. In particular, the convergence is driven by the nations in the EU. This fact is consistent with food patterns as well as trade, agricultural, and health policies that are common among EU members. Across our model specifications, the steady-state average overweight rate ranges between 60% and 77% for European female individuals and lies above 82% for their male counterparts. Confidence intervals suggest that such gender differences are statistically significant. In the EU, the point estimates of these rates are 62% and 91%, respectively. Obesity prevalence in Europe would reach long-term rates of 39% and 45% for females and males respectively, whereas these rates would be similar in the EU (approximately 28%).
... 1. Durlauf, Johnson, and Temple (2009) discuss econometric problems specific to cross-country comparisons that justify this general skepticism. ...
Article
The Great Gatsby Curve, the observation that for OECD countries greater cross-sectional income inequality is associated with lower mobility, has become a prominent part of scholarly and policy discussions because of its implications for the relationship between inequality of outcomes and inequality of opportunities. We explore this relationship by focusing on evidence and interpretation of an intertemporal Gatsby Curve for the United States. We consider inequality/mobility relationships that are derived from nonlinearities in the transmission process of income from parents to children and the relationship that is derived from the effects of inequality of socioeconomic segregation, which then affects children. Empirical evidence for the mechanisms we identify is strong. We find modest reduced-form evidence and structural evidence of an intertemporal Gatsby Curve for the United States as mediated by social influences.
... However, the empirical evidence regarding unconditional convergence across the worldwide distribution of income per capita is not supportive (Barro, 1991;Mankiw et al., 1992;Pritchett, 1997;Islam, 2003;Acemoglu, 2009). Consequently, the literature has focused on conditional convergence and club convergence, suggesting that countries tend to converge towards different steady states (Quah, 1993b(Quah, , 1996Durlauf et al., 2009;Barro, 2015). ...
... This question has spurred many empirical studies, but is surprisingly difficult to answer. Part of the problem may lie with the question.We are interested in how a distribution of outcomes evolves over time, but distributions can behave in complex ways, and much is lost by collapsing this behavior into a crude binary opposition between convergence and divergence (Durlauf et al. 2009). As in the literature on national growth, part of the interest in these questions revolves around more complex possibilities. ...
Article
Since the early 1990s, there has been a renaissance in the study of regional growth, spurred by new models, methods, and data. We survey a range of modeling traditions, and some formal approaches to the hard problem of regional economics; namely, the joint consideration of agglomeration and growth. We also review empirical methods and findings based on natural experiments, spatial discontinuity designs, and structural models. Throughout, we give considerable attention to regional growth in developing countries. Finally, we highlight the potential importance of processes that are specific to regional decline, and which deserve greater research attention.
... This concept says that initially and structurally similar countries converge to similar steady states. See, Durlauf (1996), Islam (2003) and Durlauf et al. (2009a) for nice surveys on convergence debate. ...
Article
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The aim of this paper is to provide an overview of empirical cross-country growth literature. The paper begins with describing the basic framework used in recent empirical crosscountry growth research. Even though this literature was mainly inspired by endogenous growth theories, the neoclassical growth model is still the workhorse for cross-country growth empirics. The second part of the paper emphasises model uncertainty, which is indeed immense but generally neglected in the empirical cross-country growth literature. The most outstanding feature of the literature is that a large number of factors have been suggested as fundamental growth determinants. Together with the small sample property, this leads to an important problem: model uncertainty. The questions which factors are more fundamental in explaining growth dynamics and hence growth differences are still the subject of academic research. Recent attempts based on general-to-specific modeling or model averaging are promising but have their own limits. Finally, the paper highlights the implications of model uncertainty for policy evaluation.
... Most of these empirical studies have been driven by the emergence of novel econometric methods. Durlauf et al. (2009) furnishes a comprehensive survey of these methodologies utilized for the analysis of income convergence for the last quarter of a century. Very recently, there have been significant advances in the area of unit roots and structural breaks. ...
Article
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This paper aims at providing further evidence on stochastic income convergence for a group of 30 countries over a century long period, from 1900 to 2008, utilizing novel econometric methods for determining structural breaks and unit roots. Recent studies have noted the problem of low power and size distortions in unit root tests, and spurious rejections that plague unit root tests which treat structural breaks asymmetrically. The proposed methodology used in this paper enables robust detection and estimation of breaks, and reliable inference regarding the presence of unit roots conditional on the presence or absence of breaks. We find that the periods of War, the Great Depression and oil price shocks to be possible reasons for the occurrence of breaks. The unit root test results indicate limited evidence of stochastic income convergence. We find none of the current upper-middle-income and lower-middle-income countries to show convergence, while high-income countries such as Australia, Canada, the Netherlands, Norway, Portugal and USA show signs of convergence toward the world average.
... Stationarity is a concept that is closely related to the notion of convergence. Time series tests of convergence typically test for stationarity or for the presence of a unit root (see, for instance, Durlauf et al. (2009)). ...
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This paper examines the stationarity of carbon dioxide (CO2) emissions per capita for a set of 36 countries covering the period 1870-2006. We employ recently developed unit root and stationarity tests that allow for the mean reverting process to be nonlinear and take into account cross sectional dependence. By grouping countries according to their geographical proximity, the importance of cross sectional dependence in panel unit root and stationarity tests is revealed. Using a recently developed nonlinear panel unit root test, we find strong evidence that the per capita carbon dioxide emissions over the last one hundred and fifty years are stationary. Our nonlinear specification captures the dynamics of the emissions time series data more effectively and we obtain evidence supporting stationarity for all country groups under study.
... In Eq. (4), working with cross-sectional data and regressing the average growth rate of per capita output on a constant and on the level of initial per capita output and other control variables, the regressors may be correlated with the disturbance term, possibly due to country-specific unobserved heterogeneity. This, in turn, may lead to deceptive inference and inconsistent estimates of the b coefficient, one of the most serious criticisms of cross-country growth regressions (see Durlauf et al., 2009). ...
Article
The objective of this paper is to study the issue of convergence of financial systems through the lens of asset allocation. It examines β- and σ-convergence of the most important financial instruments: deposits, debt securities, shares and insurance products. The analysis is conducted on two panels of OECD countries, using data gathered from the flow of funds and from the Financial Development and Structure Database (Beck et al., 2009). In both data sets, strong evidence supports the existence of β-convergence of shares and insurance products, confirming an increasing importance of capital markets all over the developed world. In contrast, mixed results are obtained for debt securities and deposits due to differences across countries in the weight of national public debts and in the role of banks.
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Contemporary development policy concentrates predominantly on reducing noticeable economic differences in a spatial system, and an important role in this respect is played by EU Cohesion Policy. Owing to the considerable scale of financial exposure of Cohesion Policy, the assessment of effectiveness of the implemented measures and their greater reliance on evidence are of major significance. Despite numerous attempts to empirically verify the effects of EU funds spending, the problem remains unresolved, and the results of recent studies lead frequently to ambiguous conclusions. The article aims to verify the β-convergence process in EU regions in the years 2007–2015 allowing for the impact of the received EU funds and the spatial effects determining economic growth. In the research, use was made of a covergence approach consisting in the regression modelling of per capita GDP growth. Spatial econometrics methods were applied, by adding variables determining spatial interactions that can influence the economic growth rate to the specification of the estimated models. The estimated econometric models show that in the years 2007–2015 EU funds positively affected economic growth. At the same time, the process of reducing economic disparities between EU regions was observed. Moreover, the existence of spatial effects for a dependent variable was confirmed. The results also show that the value of the EU funds received in the surrounding area generally did not translate into the dynamics of growth in a given location. The research presented is one of the few in which spatial interaction was verified by using weights matrices based on contiguity, distance, flows and affiliation.
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In the literature on climate change, it is well established that CO2 is a major greenhouse gas (GHG) and SO2 is a significant atmospheric cooling aerosol. Previous studies have tended to focus on the relationship between CO2 emissions and measures of economic growth in the process of global warming. This study includes SO2 in an econometric analysis of the relationship between annual percent growth in CO2 and SO2 emissions and real GDP for a panel of 12 major industrial economies over 54 annual time periods from 1961–2014. Our study updates and extends previous studies by examining annual percent changes in CO2 and SO2 emissions across economic Expansions and Contractions, convergence of CO2 and SO2 emissions, the Granger causal linkages between CO2, SO2 and real GDP and testing the fit of the EKC, all in a single study. We conclude with some cautions for analysts and policy makers regarding the use of panel data and Granger causality tests in climate economics studies, and some policy-making implications of our results.
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This paper investigates whether global improvements in human development involve subnational regions in a territorially cohesive way. We use a subnational human development index (SHDI) for 1778 regions within 163 countries over three decades, and propose measures for relative over- and under-performance. We find that frequently observed reductions of within-country inequality are not necessarily accompanied by reductions in under- and over-performance. Moreover, from a global perspective, we detect the presence of a non-negligible set of under-developing subnational regions spanning across 30 plus countries that fail to catch-up with the world average human development.
Chapter
This book introduces a modern club convergence framework to study the cross-country dynamics of labor productivity and its proximate sources: capital accumulation and aggregate efficiency. This chapter starts by outlining the contents of the book in terms of research questions that will be answered in subsequent chapters. Next, it provides a first overview of the data by illustrating the large and increasing productivity differences that observed across countries. It concludes by pointing out the need for a club convergence framework to further improve our understanding of the economic performance of developed and developing countries.
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O presente artigo faz uma revisão seletiva do estado das artes da literatura relacionada com a chamada econometria do crescimento económico. Para o efeito, deduz as especificações que se tornaram padrão neste ramo do conhecimento, descreve os seus antecedentes teóricos e empíricos e discute as principais limitações decorrentes da estimação empírica dessas especificações.
Technical Report
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It is well established that CO 2 is a major greenhouse gas (GHG) and SO 2 is a significant atmospheric cooling aerosol. Previous studies have tended to focus on the relationship between CO 2 emissions and measures of economic growth, This study presents an econometric analysis of the relationship between annual percent growth in CO 2 and SO 2 emissions and real GDP for a panel of 12 major industrial economies over 54 annual time periods from 1961-2014 that expands and extends previous studies. Specifically, we examine annual percent changes in CO 2 and SO 2 emissions across economic Expansions and Contractions, the decoupling hypothesis, convergence of CO 2 and SO 2 emissions, and the Granger causal linkages between CO 2 , SO 2 and real GDP. We conclude our study with a summary and cautionary note for analysts and policy makers regarding the use and possible misuse of panel data analysis and Granger causality tests in climate economics studies.
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We evaluate the hypothesis of convergence to an optimal long-run body weight worldwide. We formulate a simple rational non-addiction eating model to derive a testable equation that allows us to verify the existence of a long-run body weight as well as its estimation. We use a database of body mass index (BMI) estimates across countries over four decades published by the NCD Risk Factor Collaboration. We find that BMIs converge among European countries but not in the rest of the world. Consistent with the theoretical model, our long-run estimates suggest that. European nations will show an average BMI above healthy levels. In particular, females and maleswill show average BMIs classified as overweight levels (BMI = 28.3). Confidence intervals and sensitivity analysis suggest that males might reach long-term BMI levels associated with obesity (BMI > 30). We discuss the implications of our findings from the perspectives of health economics and economic development. (temporary link to download paper :https://www.sciencedirect.com/science/article/pii/S1570677X17303155)
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An algorithm for the analysis of multivariate data is presented and is discussed in terms of specific examples. The algorithm seeks to find one- and two-dimensional linear projections of multivariate data that are relatively highly revealing.
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The concepts of σ-convergence, absolute β-convergence and conditional β-convergence are discussed in this paper. The concepts are applied to a variety of data sets that include a large cross-section of 110 countries, the sub-sample OECD countries, the states within the United States, the prefectures of Japan, and regions within several European countries. Except for the large cross-section of counties, all data sets display strong evidence of σ-convergence and absolute β-convergence. The cross-section of countries exhibits σ-divergence and conditional β-convergence. The speed of conditional convergence, which is very similar across data sets, is close to 2% per year.
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We provide an overview of recent empirical research on patterns of cross-country growth. The new empirical regularities considered differ from earlier ones, e.g., the well-known Kaldor stylized facts. The new research no longer makes production function accounting a central part of the analysis. Instead, attention shifts more directly to questions like, Why do some countries grow faster than others? It is this changed focus that, in our view, has motivated going beyond the neoclassical growth model.
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The conventional approach to estimating how fast economies converge examines the cross-economy relationship between the growth rate of per-capita output over some time period and its initial level. This approach produces consistent estimates only under highly restrictive assumptions, which are violated by the data. The paper develops an alternative approach that produces consistent estimates under weak assumptions. This approach yields estimates substantially larger than those reported in the literature and also sufficiently large to be broadly consistent with the predictions of neoclassical growth theory.
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This paper revisits the income convergence hypothesis by using the nonlinear unit root test of Kapetanios et al. [Kapetanios, G., Shin, Y. and A. Snell, 2003. Testing for a unit root in the nonlinear STAR framework. Journal of Econometrics 112, 359–379.]. Out of the 12 OECD income gaps in which nonlinearity has been detected, two cases of long-run converging and four cases of catching up are found.
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The sustainability of the ERM and the feasibility of EMU is dependent upon the economies of the EC achieving the appropriate degree of economic convergence. One of the difficulties in determining this is the absence of a broadly acceptable measure of economic convergence. In this paper we consider possible definitions of convergence for time series. To be useful the definition must allow for the stochastic nature of the data under consideration, and for the development of formal tests of a convergence hypothesis. These two considerations lead us to a preferred definition of convergence and a proposed framework for testing, based on a time varying parameter formulation and estimation by Kalman filter techniques. We consider the relationship between our proposed framework and other methods for testing convergence. It is argued that our method encompasses most of the tests that exist in the literature. Tests for convergence are then applied to exchange rates, interest rates and inflation rates for a sample of countries including members of the ERM. We conclude that the ERM may have helped to promote convergence in the nominal exchange rates. Although interest rate differentials have declined, convergence does not seem to be occurring. For inflation rates convergence can be rejected. Taken together these results suggest reasons for the recent disruption to the ERM and bring into question its sustainability. © 1997 John Wiley & Sons, Ltd.
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Have the poor economies of Australasia grown faster than the rich ones? This question is analyzed for the seven colonies of Australasia for the period 1861–1991, and it is found that the levels of per-capita income across the colonies are converging to one another: the initially poor colonies have indeed grown faster. The cross-sectional dispersion of per-capita incomes also declined between 1861–1991, but most of this decline occurred in the pre-Federation 1861–1901 period, as the extent of dispersion in 1991 is very close to that attained in 1901.
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In a cross-section where the initial distribution of observations differs from the steady-state distribution and initial values matter, convergence is best measured in terms of σ-convergence over a fixed time period. For this setting, we propose a new simple Wald test for conditional σ-convergence. According to our Monte Carlo simulations, this test performs well and its power is comparable with the available tests of unconditional convergence. We apply two versions of the test to conditional convergence in the size of European manufacturing firms. The null hypothesis of no convergence is rejected for all country groups, most single economies, and for younger firms of our sample of 49,646 firms.
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ABSTRACT A widely entertained hypothesis holds that, in comparisons among countries, productivity growth rates tend to vary inversely with productivity levels. A century of experience in a group of presently industrialized countries supports this hypothesis and the convergence of productivity levels it implies. The rate of convergence, however, varied from period to period and showed marked strength only during the first quarter-century following World War II. The general process of convergence was also accompanied by dramatic shifts in countries' productivity rankings. The paper extends the simple catch-up hypothesis to rationalize the fluctuating strength of the process and explores the connections between convergence itself and the relative success of early leaders and latecomers.
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This paper asks whether the income gap between rich and poor nations can be explained by multiple equilibria. We explore the quantitative implications of a simple two-sector general equilibrium model that gives rise to multiplicity, and calibrate the model for 127 countries. Under the assumptions of the model, around a quarter of the world’s economies are found to be in a low output equilibrium. We also find that, since the output gains associated with an equilibrium switch are sizeable, the model can explain between 15 and 25% of the variation in the logarithm of GDP per worker across countries.
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I study roles of internal migration in regional income convergence in Japan. According to theory, migration from poor regions to rich ones should have been an important source of convergence, but previous empirical studies do not find such an effect. Some have argued this may be because migrants carry higher human capital than nonmovers. I investigate this hypothesis critically by studying how migration has affected educational attainment and demographic structure of the regions. It is shown that, although this effect did slow down convergence, its magnitude was too small to account for the discrepancy between theory and empirics. J. Japan. Int. Econ., March 2001, 15(1), pp. 29–49. Department of Economics, Yokohama National University, 79-3 Tokiwadai, Hodogaya-ku, Yokohama 240-8501, Japan. Copyright 2001 Academic Press.Journal of Economic Literature Classification Numbers: O40, O53, R11, R23.
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Much of the empirical growth literature has attempted to evaluate growth theories by estimating regressions that relate the growth rate of per capita output for a sample of countries to initial per capita output and country characteristics. The resulting inferences are shown to be invalid except under strong conditions. An alternative method that uses cross-country variances is formulated and shown to produce valid inferences under weak conditions. Applying this method to data from thirteen countries over the period 1870–1989 provides no evidence that their per capita outputs have different trend growth rates and much evidence that they revert toward a common trend. This evidence does not support those endogenous growth theories that predict appreciably different trend growth rates across countries.
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This paper provides a framework for understanding the cross-section and time series approaches which have been used to test the convergence hypothesis. First, we present two definitions of convergence which capture the implications of the neo-classical growth model for the relationship between current and future cross-country output differences. Second, we identify how the cross-section and time series approaches relate to these definitions. Cross-section tests are shown to be associated with a weaker notion of convergence than time series tests. Third, we show how these alternative approaches make different assumptions on whether the data are well characterized by a limiting distribution. As a result, the choice of an appropriate testing framework is shown to depend on both the specific null and alternative hypotheses under consideration as well as on the initial conditions characterizing the data being studied.
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Kremer, Onatski, and Stock (KOS) criticize twin peaks dynamics in the evolution of cross-country income dynamics. They suggest instead convergence to a single peak at high incomes, with a prolonged transition when polarization and inequality increase. This article makes three points. First, the data are as consistent with a twin peaks characterization as they are for KOS's preferred description—in KOS's own analysis as well as across other studies. Second, the substantive economic message is identical in both twin peaks and KOS views: the global poor are substantial and will continue so—whether for centuries or for infinity is nit-picking. Finally, getting the empirics right matters greatly for theories of economic growth.
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Recent empirical papers study the convergence of per capita income, given an initial cross-sectional variation in per capita income. The question of why per capita income levels differ in the first place arises. This paper argues that the answer to this question has important implications for the estimation and interpretation of convergence models. If income is influenced by more than one factor, then we cannot expect a given cross-section of income levels to converge in the same manner at every point in time and for every set of countries, even if each country's income level is generated by the same economic model.
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Using a continuous state space approach, this note extends Feyrer's (Feyrer, J., 2003. Convergence by Parts. Manuscript, Dartmouth College. (available at http://www.dartmouth.edu/-jfeyrer/parts.pdf)) study of the proximate determinants of the shape of the long-run distribution of income per capita. Contrary to Feyrer's finding of the primacy of total factor productivity (TFP), the results here imply that traps in both TFP growth and capital accumulation may matter. (c) 2004 Elsevier B.V. All rights reserved.
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We estimate the empirical bimodal cross-sectional distribution of real Gross Domestic Product per capita of 120 countries over the period 1960–1989 by a mixture of a Weibull and a truncated normal density. The components of the mixture represent a group of poor and a group of rich countries, while the mixing proportion describes the distribution over poor and rich. This enables us to analyse the development of the mean and variance of both groups separately and the switches of countries between the two groups over time. Empirical evidence indicates that the means of the two groups are diverging in terms of levels, but that the growth rates of the means of the two groups over the period 1960–1989 are the same.
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The analysis relies on estimating a stochastic kernel and the associated with it ergodic density. It also derives nonparametric quantiles to better assess relative regional-income mobility. The long-run density implied by the estimates suggests neither strong polarization nor convergence.
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In this paper, we test the convergence hypothesis across Brazilian municipalities in Brazil from 1970 to 1996 using Quahs [Scand. J. Econ. 95 (4) (1993) 427; J. Econ. Growth 2 (1997) 27] methodology which is based on the dynamics of cross-section distributions of economies incomes. Our empirical investigation suggests that there is no convergence across Brazilian municipalities, or in other words, that there is formation of convergence clubs.
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This paper generalizes the empirical analysis of the Solow growth model to account for country-specific heterogeneity. This generalization relaxes the assumption made in bulk of empirical growth studies that all countries possess identical aggregate production functions. Our empirical results indicate that there is substantial country-specific heterogeneity in the Solow parameters-heterogeneity that is associated with differences in initial income. We therefore conclude that the explanatory value of the Solow growth model is substantially enhanced by allowing for country-specific, i.e. local, production functions.
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In this paper I apply the nonparametric methods proposed by Quah to data on US state relative income levels. In contrast to Quah’s results using cross-country data I find no evidence of polarization in the cross-state income distribution. The long-run density implied by the estimates is strongly unimodal. This finding is consistent with the results of previous analyses of convergence in state income levels using other methods.
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In this paper we focus primarily on the dynamic evolution of the world distribution of growth rates in per capita GDP. We propose new concepts and measures of “convergence,” or “divergence” that are based on entropy distances and dominance relations between groups of countries over time.We update the sample period to include the most recent decade of data available, and we offer traditional parametric and new nonparametric estimates of the most widely used growth regressions for two important subgroups of countries, OECD and non-OECD. Traditional parametric models are rejected by the data, however, using robust nonparametric methods we find strong evidence in favor of “polarization” and “within group” mobility.
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This paper uses regression trees to examine the role of initial conditions in the economic development of the US states since 1950. We seek to ascertain whether existing differences in state per capita incomes reflect temporary deviations from a common stochastic steady state or the permanent effects of differences in initial conditions. We assume that the states share a common set of economic fundamentals so that, absent differences in initial conditions, they ought to share a common steady state. We allow the members of a large set of potentially important initial conditions to define convergence clubs among the states.
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This article examines convergence of per capita output for 16 OECD (Organization for Economic Cooperation and Development) countries. Conventional tests on conditional and time series convergence have given mixed results for similar economies. Utilizing the concepts of deterministic and stochastic convergence, we develop techniques which incorporate endogenously determined break points to test the unit root hypothesis in relative per capita income. The tests provide evidence of deterministic convergence for 10, and stochastic convergence for 14, of the 16 OECD countries. Our findings reveal that World War II is the major cause of the structural shifts in relative output.
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Stochastic dominance conditions may be interpreted as a means of defining the degree and nature of separateness of two distributions. By describing polarization states in terms of stochastic dominance conditions this paper presents a taxonomy of, and tests for, polarization both between and within population distributions. Four examples from the poverty, growth and development, wage distribution and assortative pairing literatures are used to illustrate how the techniques may be used in empirical applications.
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The time series properties of per-capita income in U.S. regions are tested for consistency with the neoclassical growth model's prediction of per-capita income convergence. Two conditions are required for convergence. Shocks to relative regional per-capita incomes should be temporary (stochastic convergence), and initially poor regions should catch up to rich regions (β-convergence). We find evidence for stochastic convergence across U.S. regions during the 1929–1990 period after allowing for a trend break in 1946. We also find that U.S. regions have achieved β-convergence. These findings support the neoclassical model's prediction of conditional convergence.
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Using time-series based tests, proposed by Bernard and Durlauf (1996), and annual time series data, 1900–1987, on several OECD countries, the paper identifies bivariate convergence between: Belgium and The Netherlands; France and Italy; Australia and the United Kingdom; and Sweden and Denmark.
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In cross-section regressions of future growth rates on initial income levels, a negative coefficient is often interpreted as evidence consistent with exogenous growth. We use a simple growth model to show that higher initial income can imply higher future growth in an exogenous growth case, and lower future growth in an endogenous growth case. We show that the two types of models can be distinguished by the sign of the coefficient on initial capital in a regression of growth rates on both initial income and initial capital.
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A series of diagnostics are developed which can be used to probe the sensitivity of regression coefficient estimates to measurement error in each regressor when all the regressors may be measured with error. The diagnostics are based on the large-sample properties of the classical errors-in-variables model. The diagnostics provide information about the bounds on the measurement error variances of the regressors needed to bound any coefficient to a desired interval. Algorithms to compute the diagnostics are provided and the use of the diagnostics is illustrated in an example.
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Recent evidence on output convergence across economies has been widely interpreted as falsifying the predictions of endogenous growth theory. This paper shows, however, that nonconvergence is an artifact of the deterministic structure of endogenous growth models: when stochastic factor productivity is introduced, convergence tends to occur despite nondiminishing returns to capital and persistent growth. For the case of constant returns to capital, it is shown that output paths of different economies converge with probability one in single-sector economies. For multi-sectora economies convergence occurs for most plausible specifications of the stochastic process driving productivity. Increasing returns reduce the probability of convergence.
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This paper examines the role of sectors in aggregate convergence for 14 OECD countries during 1970-1987. The major finding is that manufacturing shows little evidence of either labor productivity or multifactor productivity convergence, while other sectors, especially services, are driving the aggregate convergence result. To determine the robustness of the convergence results, the paper introduces a new measure of multifactor productivity which avoids many problems inherent to traditional measures of total factor productivity when comparing productivity levels. The lack of convergence in manufacturing is robust to the method of calculating multifactor productivity.