Structural Breaks and Convergence in the Regions of Peru: 1970–2010

The aim of this paper is the analysis of stochastic and β‐convergence in the relative regional per capita outputs using different unit root tests both with and without structural breaks and using a further test that is robust to the presence of I(0) or I(1) errors. It allows robust inference on the estimates of the initial per capita output (intercepts) and the respective growth rates (slopes). The results of the application of unit root tests without structural breaks show the absence of stochastic convergence. However, by incorporating the presence of endogenous breaks, the results are reversed for all regions. In the case of β‐convergence, the results of the robust test W_RQF show that all regions have a structural break at some point during the period 1970–2010. We find different behavior for different regions. There is a catching‐up process and a lagging‐behind process for different groups of regions towards more negative or more positive paths.     

Convergence in Per Capita Carbon Dioxide Emissions Among G7 Countries: A TAR Panel Unit Root Approach

The subject of this paper is the examination the convergence of per capita carbon dioxide emissions of the G7 countries during the 1960–2005 period in a nonlinear panel analysis framework. In this approach, first the linearity of the series was tested, and when the linearity was rejected, the threshold autoregressive (TAR) panel unit root test, which splits the data into two regimes, was employed to examine the stationarity properties of the series. Because the null of linearity was rejected in the first step, we tested the stationarity of the series using the TAR panel unit root test. In the TAR panel unit root test, we found that the United Kingdom was the transition country whose per capita carbon dioxide (CO₂) emissions determined the switch from one regime to the other. The results showed that convergence existed in the first regime and divergence, in the second. When we tested whether absolute or conditional convergence existed, we found that the per capita CO₂ emissions were conditionally converging in the first regime.     

Spanish regions catching-up to Europe: an analysis based on the IB-MPI unit root procedure

This article investigates the pair-wise convergence hypothesis of 17 Spanish regions with respect to the European Union (EU) and Euro-Zone (EZ). Several definitions of convergence are taken into account. The IB-MPI unit root testing procedure is then applied. A simultaneous approach based on the gap in levels and logs is developed to study convergence. The empirical results show incomplete catching-up in six cases with respect to both EU and EZ, and complete catching-up in nine with respect to EU and four with respect to EZ. When taking into account the behaviour of both gaps and loggaps, we further get four cases of cointegrated regions with respect to EZ and only one with respect to EU. Finally, there are four regions that diverge with respect to EU, but do converge with respect to the EZ. Only Baleares diverges with respect to both of them.     

Segmented stochastic convergence across the G-7 countries

This paper analyzes the stochastic convergence in per capita income levels among the current G-7 over the period 1900–89. We show that, in the presence of possible structural breaks, the strong condition of stationary pair-wise differences between per capita GDP holds in more cases than previously supposed. However, convergence occurs more frequently in the first part of the time sample than in the second one. First version received: June 1999 / Final version accepted: Feb. 2000     

Re-Examining the Empirical Evidence for Stochastic Convergence of Two Air Pollutants with a Pair-Wise Approach

This paper examines the hypothesis of stochastic convergence for two air pollutants emissions (carbon dioxide [CO₂] and sulfur dioxide [SO₂]). The value-added of this paper lies in the use of a recent, alternative econometric method, a pair-wise approach that considers all the possible pairs of log per-capita pollutant emission gaps across all the countries in the sample. In this method, all emissions differences must be stationary around a constant mean. Empirical results support different conclusions on stochastic convergence in per capita CO₂ and SO₂ emissions depending on the choice of the unit root test. The use of specific critical values from the ADF-KPSS joint test overcomes these initial conflicting results and leads to small percentages of stationary pairs around a constant mean; which invalidate the hypothesis of stochastic convergence for per capita emissions of CO₂ and SO₂, even over the OECD sub-dataset.     

Per capita output convergence across Asian countries: Evidence from covariate unit root test with an endogenous structural break

This study investigates long-run convergence of per capita output across ten Asian countries over 1960 to 2014 by taking advantage of possible economic growth determinants, which may be responsible for setting Asian countries on a long-term steady-state growth path. We simultaneously examine the presence of output convergence in the region, as well as the statistical significance of these economic growth determinants, by using a unit root test with a stationary covariate. In addition, the study allows for the presence of endogenous structural changes in the time series under investigation in order to capture sharp drops in per capita outputs, which may be brought about by influential economic events, such as serious economic slumps in domestic economies or the global financial crises in 1997–98 and 2008–09. The limiting distribution of the covariate unit root test that permits structural breaks is also derived. The results show significant evidence to support the convergence hypothesis. In particular, asymptotically absolute convergence holds among Hong Kong, Korea, Singapore, and Taiwan. In addition, Thailand shows a convergence tendency in terms of asymptotically relative convergence toward Singapore. Malaysia, Indonesia, and India also turn out to converge toward Hong Kong in an asymptotically relative sense. Certain potential growth determinants, such as the trade/GDP ratio, inflation rate, government expenditure/GDP ratio, and quality of human capital, may help these countries achieve and maintain the long-run convergence process toward the reference countries in the region.     

Re-examination of convergence hypothesis among Indian states in panel stationarity testing framework with structural breaks

This article examines the conditional income convergence hypothesis for 17 major states in India for the period of 1960–2012. Univariate stationarity tests without structural breaks provide evidence against the convergence hypothesis. However, when two or more structural breaks are applied in per capita income series, the incomes of around 11–13 states are found to stochastically converge to the national average. This finding supports the convergence hypothesis for the panel as a whole after accounting for two data features, cross-sectional dependence and structural breaks in incomes, using a unified panel stationarity testing framework.     

Stabilising Taylor rules when the supply shock has a unit root

This paper studies the implication of unit root supply shocks for the Taylor rule. I find that, when supply shocks have a unit root, if a central bank wishes to guarantee the stationarity of inflation, then their interest rate reaction function should not respond to the output gap. Once the stationarity of inflation is guaranteed by the output-gap-response parameter, the “Taylor principle” can be applied for warranting determinacy of the dynamics.     

Are OECD consumption–income ratios stationary after all?

This paper investigates the stochastic properties of the consumption–income ratio for a sample of 23 OECD countries over the period 1960–2005. For that purpose, we employ a battery of recently developed panel unit root and stationarity tests. Our findings from panel unit root tests which do not control for structural breaks appear in line with those from previous studies since they are clearly supportive of the unit root hypothesis. In stark contrast stand the results obtained from the application of a panel stationarity test with multiple breaks, which support the existence of regime-wise stationarity in OECD consumption–income ratios once we control for cross-sectional dependence through bootstrap methods. These findings are reinforced by the median-unbiased estimates of half-lives obtained from impulse-response functions which are found to be finite for the 23 OECD countries.     

Do per capita health care expenditures converge among OECD countries? Evidence from unit root tests with level and trend-shifts

This study examines the stochastic conditional convergence of per capita health care expenditures (PCHCE) among 19 OECD countries over the period 1972–2008. Specifically, newly developed LM and RALS-LM unit root tests with allowance for two endogenously determined structural breaks are employed. The results indicate support for PCHCE convergence among most OECD countries. The results are stronger in more general tests that control for two breaks and nonnormal errors. Panel unit root tests provide additional support for the stochastic convergence of PCHCE.     

Investigating regional house price convergence in the United States: Evidence from a pair-wise approach

In this paper we examine long-run house price convergence across US states using a novel econometric approach advocated by Pesaran (2007) and Pesaran et al. (2009). Our empirical modelling strategy employs a probabilistic test statistic for convergence based on the percentage of unit root rejections among all state house price differentials. Using a sieve bootstrap procedure, we construct confidence intervals and find evidence in favour of convergence. We also conclude that speed of adjustment towards long-run equilibrium is inversely related to distance.     

Is income converging in China?

This study adopts a flexible Fourier unit‐root test proposed by Enders and Lee (2012) to revisit the tendency towards convergence in real per capita income among provinces after economic reform in China. When a data‐generating process is non‐linear, a Fourier series not only allows for the possibility of an unknown number of structural breaks with unknown forms but also allows for the use of a low‐frequency component to capture multiple changes. Contrary to what the linear statistics suggest, our results from a flexible unit‐root test indicate that China's eastern and western regions are converging to their own specific steady states.     

Convergence in Sub-Saharan Africa: a nonstationary panel data approach

Given the development of time series econometrics and nonstationary data analysis, St. Aubyn (Empirical Economics, 24, 23–44, 1999) demonstrates a new paradigm for testing income convergence, or better defined, income stability, namely testing the stationarity of pair-wise income differentials. In this paper, a panel data set of Sub-Saharan African countries is constructed and panel cointegration and unit root tests are used to investigate the convergence properties of incomes and standards of living within Africa. Overall, little evidence is found to substantiate claims of convergence across Africa, although in some cases, smaller convergence clubs within Africa may be found. In addition the use of nonstationary panel data techniques is proposed for the testing and establishing of coherent convergence clubs.     

PERSISTENCE IN CONVERGENCE AND CLUB FORMATION

In this paper, we examine the convergence hypothesis using a long memory framework that allows for structural breaks and does not rely on a benchmark country using both univariate and multivariate estimates of the long memory parameter d. Using per capita GDP gaps, we confirm the findings of non‐stationarity and long memory behavior that have been found previously in the literature using univariate tests. However, the support for these findings is much weaker when using a multivariate framework, in which case we find more evidence of stationary behavior. Based on these results, we also investigate club formation, something that would suggest the presence of conditional convergence. We describe a club formation methodology using the sequential testing criteria that we have employed in our analysis as the basis for forming clusters or clubs of countries with similar convergence characteristics.     

Convergence of per capita sulphur dioxide emissions across US states

This study examines the stochastic conditional convergence of sulphur dioxide (SO₂) emissions using the Residual Augmented Least Squares–Lagrange Multiplier (RALS–LM) unit root test with structural breaks. This procedure allows the data to account for trend breaks and nonnormal errors that have been ignored or deemphasized in previous studies. The study finds that per capita sulphur dioxide emissions exhibits stochastic conditional convergence across US states.     

Is fiscal policy stationary in China? A regional study by local government

In this study, we apply a stationarity test with a flexible Fourier function proposed by Enders and Lee (2012) to test the stationarity of the deficit–GDP ratio in China. We find that our approximation has a higher power to detect U-shaped breaks and to smooth breaks than the linear method if the true data-generating process of the deficit–GDP ratio convergence is, in fact, a stationary non-linear process. The results show that the stationarity for fiscal policy varies across different regions and that the deficit–GDP ratio of half of the regions is stationary. The results related to the budget structural balance and the fiscal deficit indicate no expansion in the Eastern and Central regions. We find that China's provinces in these two regions meet the stability theory of fiscal policy in the current stage of development. The deficit–GDP ratio is not stationary in the Western and Northeastern regions. These results indicate that the fiscal deficits in these regions are expanding and cannot be controlled by automatic market adjustment, and the government should therefore avoid deficit expansion in favor of a balanced budget policy.     

Stochastic convergence in per capita energy consumption and its catch-up rate: evidence from 26 African countries

Using annual data from 1971 to 2014, we examine stochastic conditional convergence in per capita energy consumption for 26 low income, lower middle-income and upper-middle-income African countries. To do so, we use panel unit root tests that allow for cross-sectional dependence and structural breaks as well as the recently developed univariate Residual Augmented Least Squares-Lagrange multiplier (RALS-LM) unit root test with structural breaks. Although for most countries our evidence suggests stochastic conditional convergence, we find divergence for four countries including DR Congo, Senegal, Egypt and Botswana. Consistent with the neoclassical growth models we also examine the catch-up rate between energy consumption levels of African economies and that one of China and investigate its convergence properties. As African economies continue to grow, regional energy consumption disparity narrows, African energy consumption levels will catch up to the ones in China.     

Panel LM unit root tests with level and trend shifts

This paper considers a Lagrange multiplier (LM) based panel unit root test that allows for heterogeneous structural breaks in both the intercepts and slopes of a series. We note that many popular time series variables are likely to exhibit changing means and/or trends over time. Given that the usual tests will depend on the nuisance parameters indicating the locations of the trend breaks, we adopt a transformation procedure that makes our new panel unit root tests invariant to the nuisance parameters. To illustrate the importance of the power gain provided by our test, we examine the convergence hypothesis using relative ratios of per capita health care expenditures in 20 OECD countries. Our results provide evidence that the convergence hypothesis is supported.     

Panel asymmetric nonlinear unit root test and PPP in Africa

This study revisits purchasing power parity (PPP) theory for 20 African countries using panel asymmetric nonlinear unit root test proposed by Emirmahmutoglu and Omay (2014), through the sequential panel selection method of Chortareas and Kapetanios (2009). While standard panel unit root tests fail to support the PPP, the empirical results from panel asymmetric nonlinear unit root test do support the PPP. However, additional tests reveal that support in all 20 African countries is mostly due to stationarity of the real effective exchange rates of Ghana and Rwanda where the adjustment process towards equilibrium is nonlinear and asymmetric.     

Evidence on the Convergence of Per Capita Income: A Comparison of Founder Members of the Association of South East Asian Nations and the South Asian Association of Regional Cooperation

This paper investigates the per capita income convergence patterns of a set of Association of South East Asian Nations (ASEAN) and South Asian Association of Regional Cooperation (SAARC) countries. We obtained a time‐series analysis for stochastic convergence by applying unit‐root tests in the presence of two endogenously‐determined structural breaks. We then supplemented the results by tests that produced evidence for β convergence. The evidence shows that the relative per capita income series of ASEAN‐5 countries were consistent with stochastic convergence and β convergence, but this was not found for SAARC‐5 countries. For the ASEAN‐5 countries, the structural breaks associated with the world oil crisis and the Asian crisis impacted heavily on the convergence/divergence process.