Convergence in international output

This paper proposes and tests new definitions of convergence and common trends for per capita output. We define convergence for a group of countries to mean that each country has identical long-run trends, either stochastic or deterministic, while common trends allow for proportionality of the stochastic elements. These definitions lead naturally to the use of cointegration techniques in testing. Using century-long time series for 15 OECD economies, we reject convergence but find substantial evidence for common trends. Smaller samples of European countries also reject convergence but are driven by a lower number of common stochastic trends.     

Specification and Testing of Markov Chain Models: An Application to Convergence in the European Union

Recently Markov chains have been used to analyze the convergence properties of national and regional per capita incomes. This paper highlights their applicability and importance for economists and illustrates some of the potential pitfalls associated with this approach. The empirical conclusions, based on data for the period 1975 to 1993, are that the regions of the EU appear to be converging to a form of equilibrium characterized by stable proportions of economies at a range of output per capita levels, and by a permanent chance of mobility between all levels, consistent with the existence of multiple steady-states across countries.     

A test for multimodality of regression derivatives with application to nonparametric growth regressions

This paper presents a method to test for multimodality of an estimated kernel density of derivative estimates from a nonparametric regression. The test is included in a study of nonparametric growth regressions. The results show that in the estimation of unconditional β‐convergence the distribution of the partial effects is multimodal, with one mode in the negative region (primarily OECD economies) and possibly two modes in the positive region (primarily non‐OECD economies) of the estimates. The results for conditional β‐convergence show that the density is predominantly negative and there is mixed evidence that the distribution is unimodal. Copyright © 2009 John Wiley & Sons, Ltd.     

Productivity, convergence and policy: a study of OECD countries and industries

This paper analyses trends in labour productivity and its underlying determinants in a panel of OECD countries from 1979 to 2002. Data Envelopment Analysis (DEA) is used to estimate a Malmquist measure of multifactor productivity (MFP) change. We decompose the growth in labour productivity into (i) net technological change (ii) input biased technical change (IBTC) (iii) efficiency change and (iv) capital accumulation. We analyse the effect of each of these factors in the transition towards the equilibrium growth paths of both labour productivity and per capita GDP for the OECD countries, controlling for the effects of different policies and institutions. The results indicate that on average gaps in productivity or income levels are narrowing down although there is no evidence to suggest that the entire OECD area comprises a single convergence “club”. Using kernel estimation methods we find that that labour productivity and per capita GDP are settling toward a twin peak (bimodal) distribution. Panel unit root tests over an extended (1960–2001) period provide general support for the convergence hypothesis. Analysis of the contributions of productivity growth within industries and sectoral composition changes show that aggregate productivity change is predominantly driven by ‘net’ within sector effects with very little contribution emerging from sectoral shifts (the ‘in-between’ static or dynamic effects resulting from higher or above average productivity industries gaining employment shares or low productivity industries losing shares).     

Health human capital and economic growth in Sub-Saharan African and OECD countries

This paper investigates the effects of health human capital on the growth rate of per capita income in Sub-Saharan African and OECD countries. Using an expanded Solow growth model, panel data, and a dynamic panel estimator, we find that the growth rate of per capita income is strongly and positively influenced by the stock of, and investment in, health human capital after controlling for other variables. The stock of health human capital affects the growth rate of per capita income in a quadratic way: the growth impact of health human capital decreases at relatively large endowments of health stock. Our estimates suggest that 22% and 30% of the transition growth rate of per capita income in Sub-Saharan African and OECD countries respectively, can be attributed to health. The structure of the relationship between health human capital and the growth rate of income in Sub-Saharan African countries is similar to the structure of the relationship in OECD countries. This implies that increased stocks of health human capital leads to higher steady state income. Our results have interesting policy implications.     

Testing neoclassical convergence in regional incomes and earnings

The time-series properties of per capita income and per capita earnings in the regions of the United States are tested for consistency with the neoclassical growth model's prediction of convergence. We find evidence for per capita income convergence for U.S. regions during the 1929–1990 period after allowing for a trend break in 1946. These findings support the neoclassical model's prediction of convergence. The evidence for per capita earnings convergence is, however, less conclusive. Shocks to per capita earnings are found to be more persistent than shocks to per capita income. This implies that the regional distribution of transfer payments tends to smooth the effects of deviation on relative regional per capita earnings and reinforce trends in per capita income convergence.     

Economic transition and growth

Some extensions of neoclassical growth models are discussed that allow for cross‐section heterogeneity among economies and evolution in rates of technological progress over time. The models offer a spectrum of transitional behavior among economies that includes convergence to a common steady‐state path as well as various forms of transitional divergence and convergence. Mechanisms for modeling such transitions, measuring them econometrically, assessing group behavior and selecting subgroups are developed in the paper. Some econometric issues with the commonly used augmented Solow regressions are pointed out, including problems of endogeneity and omitted variable bias which arise under conditions of transitional heterogeneity. Alternative regression methods for analyzing economic transition are given which lead to a new test of the convergence hypothesis and a new procedure for detecting club convergence clusters. Transition curves for individual economies and subgroups of economies are estimated in a series of empirical applications of the methods to regional US data, OECD data and Penn World Table data. Copyright © 2009 John Wiley & Sons, Ltd.     

The next hundred years of growth and convergence

World gross domestic product per capita is forecast to grow at 2.6% annually over the next 100 years. Convergence of less-developed countries toward output levels of the world frontier accounts for much of the forecast. Projecting recent growth in China and India accounts for much of the forecast convergence. The forecast differs from the earlier literature because the facts of convergence have changed in recent decades. A Markov-switching model is estimated for each country, allowing each country to switch on or off a path of convergence to the world output frontier. Bayesian estimates of the historical process and posterior forecasts are offered.     

The Penn-Balassa-Samuelson effect through the lens of the dependent economy model

The positive correlation between per capita income and cross-country price levels is called the “Penn-Balassa-Samuelson effect.” The most influential explanation of this effect centers around sectoral output productivities as the determinant of the relative price of nontraded goods. The interaction between the change in relative prices and the change in per capita income, the dynamic PBS effect, is less well known. This paper extends the Turnovsky and Sen (1995) model of a small open economy by adding external economies into the production function. The model's dynamics accord well with several features of the empirical data on the dynamic PBS effect.     

IMPACT OF RELATIVE POPULATION CHANGE ON REGIONAL INCOME CONVERGENCE: EVIDENCE FROM TURKEY

The aim of this paper is to show the impact of relative population change on regional income convergence. Using the panel data of 64 Turkish provinces from 1987 to 2000, the results from modified convergence analyses show that both income and per capita income between provinces in Turkey indicate converging patterns. The convergence rates for the provincial per capita income, however, turned out to be about 30 percent larger than that of income. In order to examine this difference, the impact of relative population change on the growth process is incorporated using a decomposition analysis. The findings suggest that 17 percent of the 100 percentage point growth of per capita income resulted from the change in population share in favour of the provinces with high per capita incomes. The existence and pace of regional income convergence, therefore, may well be related to the degree of relative population change.     

WORLD OUTLOOK

In the course of 1984 growth rates in the major economies came together. This reflects a slowdown in the United States, and to a lesser extent Japan, from the middle of the year and continuing recovery in Europe. This convergence is expected to continue in 1985 when total output in the OECD area is forecast to increase by 3 per cent. Within this total it is likely that the US, West Germany and the UK all achieve about 3 per cent; Japan should grow more quickly, France more slowly. In spite of a rapid recovery in output from the late-1982 trough, inflationary pressures remain weak. Measured in dollar terms, non-oil commodity prices have fallen and the oil price is under considerable down wards pressure. We expect inflation to stay at about its preset level in the US, West Germany, Japan and the UK and decline further in France, Italy and other countries where policy reaction to the 1979-80 oil price shock was delayed. In the medium term we expect the world economy to experience steady growth combined with a constant or slightly increasing inflation rate. This reflects a stable policy environment and falling real oil prices. After the excesses of the 1970s and early 1980s it is possible that the rest of the decade will experience u greater stability than at any time since the 1960s.     

Does Financial Development Affect Environmental Degradation? Evidence from the OECD Countries

In this study, building a simple model that incorporates static and dynamic elements, the relationship of financial development and economic growth to environmental degradation is investigated together with the validation of the Environmental Kuznets Curve (EKC) hypothesis. Our analysis is based on an unbalanced panel data set covering the OECD countries over the period 1970–2014. Our approach thoroughly accounts for the presence of cross‐sectional dependence between the sample variables and utilizes second generation panel unit root tests in order to investigate possible cointegration relationships. The empirical findings do indicate that local (NO_x per capita emissions) and global (CO₂ per capita emissions) pollutants redefine the EKC hypothesis when we account for the presence of financial development indicators. Specifically, in the case of global pollution an N‐shape relationship is evident in both static and dynamic frameworks, with a very slow adjustment. Lastly, our study calls for a strengthening of the effectiveness of environmental degradation policies by ensuring sustainability of the OECD banking system in order to drastically reduce emissions. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

Theory of social transformation,political transition and economic growth

In this paper, I develop a model of sociopolitical transition that links the sociopolitical transformational process of countries to the dynamic process of output per capita and economic growth. Social polarization breeds discriminatory practices regarding government redistribution. This brings about inefficient allocation of resources away from production to political power struggle, leading to poor economic outcomes. However, the model shows that social integrative processes may correct this inefficiency over time depending on the degree of social fractionalization, the level of social distance between the groups, the level of production technology, etc. Even though the model predicts long-run convergence of growth rates and output per capita across countries, it shows possible prolonged divergence of these economic variables.     

Growth and convergence in a multi-country empirical stochastic Solow model

The paper considers international per capita output and its growth using a panel of data for 102 countries between 1960 and 1989. It sets out an explicitly stochastic Solow growth model and shows that this has quite different properties from the standard approach where the output equation is obtained by adding an error term to the linearized solution of a deterministic Solow model. It examines the econometric properties of estimates of beta convergence as traditionally defined in the literature and shows that all these estimates are subject to substantial biases. Our empirical estimates clearly reflect the nature and the magnitude of these biases as predicted by econometric theory. Steady state growth rates differ significantly across countries and once this heterogeneity is allowed for the estimates of beta are substantially higher than the consensus in the literature. But they are very imprecisely estimated and difficult to interpret. The paper also discusses the economic implications of these results for sigma convergence. © 1997 John Wiley & Sons, Ltd.     

WORLD OUTLOOK

Over the last 12 months industrial production in the OECD area has risen by 8–9 per cent, only slightly less rapidly than in the first year of recovery from the OPEC 1 oil crisis. Much of the growth in output stems from a very rapid expansion in North America although, in the second half of 1983, output in Europe and Japan began to accelerate. We expect the recovery to be maintained during 1984 with some convergence of growth rates. For the year as a whole we are now forecasting 61/2 per cent growth of industrial production, 33/4 per cent for total GNP. By the end of 1983 the long-standing reduction in inflation had run its course and OECD consumer prices were about 5 per cent higher than a year earlier. Within the area some countries, such as France and Italy, were still reducing inflation, but this was offset by the US where inflation has been rising slowly since the summer. We expect these trends to continue in 1984, i.e. stable inflation in the OECD but accelerating prices in the US, producing in each case about 5 per cent inflation. In 1985 we are now forecasting a slowdown in the world economy. This is expected to be centred on the United States, where the problem of the Federal Budget remains to be tackled. By the time of the Presidential election the US economy will have registered two years of relatively rapid growth. This is likely to be producing upward pressure on prices and interest rates and, as a result, a pause in 1985 in the growth of output. In Europe and Japan, where output has grown more slowly, we expect the recovery to be sustained in the medium term.     

The Roles of Economic Freedom and Regulatory Quality in Creating a Favorable Environment for Investment in Energy R&D,Infrastructure, and Capacity

Sustainable investment in energy requires a favorable economic and regulatory environment. A random effects model (PLS estimations), using a four‐year panel, reveals the growth rate in real per capita GDP for OECD nations as an increasing function of both economic freedom and regulatory quality. These results underscore the critical roles that economic freedom and regulatory quality play, directly and indirectly, in creating an environment conducive to sustainable investment in energy R&D and infrastructure.     

Italian economic dualism and convergence clubs at regional level

This paper gives a contribution to the debate on regional convergence by comparing the long run prediction of convergence clubs introduced by Quah (1996 and 1997) with the actual observed dynamics of the Italian regions during the period 1970–2004. To this end we analyze the evolution of per capita income levels for the Italian regions using a non-traditional (non-parametric) statistical model. In addition we segment the set of economies by the mean of hierarchical clustering methodologies and compare the trajectories of the regions by introducing different notions of distance. The general conclusion is that the average distance identifies a clear division between a high performance club consisting of regions from the Center North, and a low performance club composed by regions from the South and islands. The presence of a cluster composed by Center North regions is substantially confirmed by the distance correlation analysis, suggesting an homogeneous response to external shocks. By contrast Southern regions display the same dynamical evolution but difference in co-movements. Our analysis provides hints about the fundamentals that link the regions in their process of divergence. In fact the performance clubs pattern we discovered reflects the distribution of economic activities as well as the structural attributes of the regional economies.     

Why cities should not be subsidized

The paper deals with the question of whether fiscal transfers received by cities can be justified by a higher cost of producing publicly provided goods. In the model, increasing the population density implies both a higher output per capita due to agglomeration economies and a higher cost of the publicly provided good due to congestion. It is shown that introducing fiscal transfers to be paid by the region with the lower population density will generally reduce welfare. This result is obtained since the city is already beyond the level of optimum agglomeration.     

A Simple Test for Convergence of Metropolitan Income in the United States

The prevalent test for income convergence used in many recent studies of convergence across spatial economic units in the United States is to use a regression equation in which income growth is regressed against the initial level of income (this is known as β convergence). That method, however, has been crtiticized as an instance of Galton's fallacy of regression. We devise a simple test for the income β-convergence hypothesis which does not suffer from “Galton's fallacy” and apply it to all of the metropolitan areas of the United States for the period 1969–1995. For the test we use two income measures: per capita personal income and average wages. Our results conclusively support convergence of per capita personal income and of wage per worker for metropolitan areas in the United States. We also test for σ convergence, the hypothesis of diminishing dispersion in income among places over time, and find no support for the hypothesis.