Assessing economic convergence in the EU: is there a perspective for the ‘cohesion countries’?

This article analyses the stochastic income convergence within the EU-15. The empirical analysis uses per capita GDP, in PPP and in constant prices of 2005 for the period 1950 to 2010. Apart from the traditional DF type tests we also account for possible structural changes. In this direction, we employ the Zivot-Andrews (1992) and the Lee-Strazicich (1999, 2003) testing procedures, for one and two breaks, endogenously determined. Furthermore, we apply the Carlino and Mills (1993) methodology proposed for the detection of β-convergence. The overall evidence supports the existence of two discrete clubs, the first by the ‘cohesion countries’ (Portugal, Ireland, Greece and Spain) and the second by the remaining members. In particular, there is a clear evidence of convergence within each club, whereas between clubs there is a luck of catching-up effects. Furthermore, investigation of correlation between relative per capita GDP of each country and several factors that are often identified as growth stimulants, namely Total Factor Productivity, FDI, investment and openness confirm, with the exception of Greece, a strong association between these factors and the convergence process. However, progress in the convergence has not been uniform across countries and over time, reflecting the specific interactions between domestic and international factors and their impact on the convergence process of individual countries.     

The intertemporal relation between government revenue and expenditure in the United Kingdom, 1750 to 2004

We examine the intertemporal relation between government revenue and expenditure in the UK during 1750 to 2004. We pay particular attention to long run trends by applying a battery of unit root and cointegration techniques to the data, and we use a modified Granger causality test on data spans organized around structural breaks in the series. The results suggest that, allowing for structural breaks, UK real revenue and spending are I(1) series and cointegrated and that Granger causality runs from government spending to revenue. As such, the ‘spend-tax’ hypothesis appears to best characterize the long run intertemporal relation between government revenue and spending in the UK.     

Do the Spanish regions converge? A unit root analysis for the HDI of the Spanish regions

This article studies the possible stochastic convergence between the Spanish regions in 1980–2010. The application of unit root techniques to the new Human Development Index recently calculated in Herrero et al. (2013) allows us to show that the evolution of the Spanish economy can be better understood as the sum of divergent forces rather than as a group of convergent regions. Similar conclusions can be drawn when the per capita GDP is used, although these two variables exhibit different patterns of behaviour at the end of the sample. Finally, we also observe that the distance between northern and southern regions has increased since 2000.     

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 the consumption-income ratio stationary in African countries? Evidence from new time series tests that allow for structural breaks

This article examines whether the consumption-income ratio is stationary in 50 African countries. We use the residual augmented least squares (RALS-LM) unit root test that allows for structural breaks. The empirical evidence shows that the consumption income ratio is stationary around structural breaks in most (44 out of 50) African countries. This is consistent with the predictions of most economic theories. The general finding of mean reversion implies that (policy) shocks are likely to have only temporary effects on the consumption-income ratio in most African countries .     

Is the efficient market hypothesis day-of-the-week dependent? Evidence from the banking sector

In this article, we propose a new hypothesis: that the efficient market hypothesis is day-of-the-week-dependent. We apply the test to firms belonging to the banking sector and listed on the NYSE. We find significant evidence that the efficient market hypothesis is day-of-the-week-dependent. Overall, for only 62% of firms, the unit root null hypothesis is rejected on all the five trading days. We also discover that when investors do not account for unit root properties in devising trading strategies, they obtain spurious profits.     

Testing of unit roots and other fractionally integrated hypotheses in the presence of structural breaks

Tests of unit roots and other nonstationary hypotheses that were proposed by Robinson (1994) are applied in this article to the Nelson and Plosser's (1982) series. The tests can be expressed in a way allowing for structural breaks under both the null and the alternative hypotheses. When applying the tests to the same dataset as in Perron (1989), we observe that our results might be consistent with those in Perron (1989) when testing the nulls of trend-stationarity or a unit-root. However, we also observe that fractionally integrated hypotheses may be plausible alternatives in the context of structural breaks at a known period of time. Final version received: August 2000/Final version accepted: August 2001 RID="*" ID="*"  The author gratefully acknowledges the financial support from the European TMR grant No. ERBFMRX-CT-98-0213. Comments of two anonymous referees are also acknowledged.     

Specification and estimation of stochastic multiple-output production and technical inefficiency

This paper presents a primal-based approach for specification and estimation of multiple-output production frontiers that allows simultaneous identification and estimation of determinants of technical inefficiency. The proposed model extends the technical efficiency effects model by Battese and Coelli (1995) to general multiple-output technologies. An empirical application using Swedish health care panel data from the years 1989–1994 is included. The key issue is to test for the effects on technical efficiency of an organizational reform implemented with the primary purpose to increase efficiency. The results reveal no significant effect on technical efficiency of the reform, but evidence of overall decreased technical efficiency and technical progress in the provision of health care over the studied time period are found.     

Bayesian analysis of periodic unit roots in the presence of a break

A Bayesian testing approach for a periodic unit root in quarterly and monthly data is presented. Further a Bayesian test is introduced to test for unit roots at (non)seasonal spectral frequencies. All procedures admit one structural break in the periodic trend function, where the occurrence of a break and the associated timing are treated as additional model parameters. A Bayesian model averaging (BMA) approach is proposed and power functions of the tests are computed. Overall the results indicate that the BMA periodic unit root test exhibits favourable test properties even in small samples. In an empirical application the presented testing procedures are used to test for (non)seasonal forms of unemployment persistence among OECD countries.     

Book Review

Unit-root testing strategies are unnecessarily complicated because they do not exploit prior knowledge of the growth status of the time series, they worry about unrealistic outcomes, and they double- or triple-test for unit roots. The authors provide a testing strategy that cuts through these complications and so facilitates teaching this dimension of the unit-root phenomenon. F tests are used as a vehicle for understanding, but t tests are recommended in the end, consistent with common practice.     

On the joint Fourier–ESTAR testing of PPP

The purchasing power parity (PPP) is the hypothesis that the real exchange rate series are stationary. This study briefly reviews and applies six competing unit root test procedures to test PPP. Reflecting the existing literature, the results are mixed. The Kiliç test is the most favourable while the Kapetanios, Shin, and Snell (KSS) test is the least favourable to PPP and the standard ADF test lies in between. The same conclusion applies to the Fourier extensions of those three tests. The results support a recently suggested F-test for the significance of Fourier terms in unit root test equations.