Financial development,economic growth and convergence clubs

To study the role of financial development in economic growth, we apply an array of convergence tests designed to capture nonlinear transitional dynamics to real outputs per capita. Strong evidence of multiple convergence clubs is observed, implying that the clubs are formed based on the initial level of real output per capita and average growth rate. Our empirical results show that the stage of economic growth of each country plays an important role for the composition of the convergence clubs. Furthermore, financial development emerges to be a significant determinant, albeit plays differently in the economic growth of each convergence club.     

Convergence,divergence, or multiple steady states? New evidence on the institutional development within the European Union

Convergence in institutions and in per capita income across the European Union (EU) Member States are key goals of the European integrations process. Especially in the course of the various EU enlargement waves starting in 2004, it was intensively discussed whether institutional and structural homogeneity are necessary preconditions for real convergence and the smooth functioning of the EU or whether a (further) catching up in the institutional and economic development will endogenously occur after the EU accession. Our paper is dedicated to the analysis of these institutional dynamics within the EU. In particular, we analyze the formation of institutional convergence clusters using Phillips and Sul's (2007, 2009) log t-test over the period 2002 to 2018. Our results indicate the existence of multiple institutional clubs with various countries being stuck in a poor institutional trap. Moreover, we find that institutional convergence clubs are formed mainly on the basis of geographic region; in particular, we identify a northwest-southeast divide. When analyzing per capita income clubs, a rather similar picture emerges, suggesting that the underlying institutional clusters might drive the formation of income clubs. We also study the factors that determine institutional club membership by using an ordered probit model. Most importantly, we find that the initial levels of human capital and institutional quality are decisive for determining whether a country is on a high or low institutional growth path.     

Club Convergence in Carbon Dioxide Emissions

We examine convergence in carbon dioxide emissions among 128 countries for the period 1960–2003 by means of a new methodology introduced by Phillips and Sul (Econometrica 75(6):1771–1855, 2007a). Contrary to previous studies, our approach allows us to examine for evidence of club convergence, i.e. identify groups of countries that converge to different equilibria. Our results suggest convergence in per capita CO₂ emissions among all the countries under scrutiny in the early years of our sample. However, there seem to be two separate convergence clubs in the recent era that converge to different steady states. Interestingly, we also find evidence of transitioning between the two convergence clubs suggesting either a slow convergence between the two clubs or a tendency for some countries to move from one convergence club to the other.     

Analysing convergence in Europe using the non-linear single factor model

We investigate convergence in European price level, unit labour cost, income and productivity data over the period of 1960–2006 using the non-linear time-varying coefficients factor model proposed by Philips and Sul (2007 Econometrica 75:1771–1855). This approach is extremely flexible in order to model a large number of transition paths to convergence. We find regional clusters in consumer price level data. GDP deflator data and unit labor cost data are far less clustered than CPI data. Income per capita data indicate the existence of three convergence clubs without strong regional linkages; Italy and Germany are not converging to any of those clubs. Total factor productivity data indicate the existence of a small club including fast-growing countries and a club consisting of all other countries.     

Income convergence clubs for Brazilian Municipalities: a non-parametric analysis

This article analyses the evolution of relative per capita income distribution of Brazilian municipalities over the period 1970–1996. Analyses are based on non-parametric methodologies and do not assume probability distributions or functional forms for the data. Two convergence tests have been carried out – a test for sigma convergence based on the bootstrap principle and a beta convergence test using smoothing splines for the growth regressions. The results obtained demonstrate the need to model the dynamics of income for Brazilian municipalities as a process of convergence clubs, using the methodology of transition matrices and stochastic kernels. The results show the formation of two convergence clubs, a low income club formed by the municipalities of the North and Northeast regions, and another high income club formed by the municipalities of the Center-West, Southeast and South regions. The formation of convergence clubs is confirmed by a bootstrap test for multimodality.     

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.     

Real convergence in Europe: A cluster analysis

In this paper we analyse real convergence in GDP per worker in the EU member states. The aim is to test whether there is evidence of club convergence in the EU, i.e. divergence in GDP per worker. Evidence in favour of cluster or club convergence may be an indication of significant productivity divergences between countries, which may also explain the current turmoil in the euro zone. The results show evidence of different economic growth rates within Europe, which also converge to different steady states, implying divergence in the EU-14. Within the EU-14 member states we observe two convergence clubs, which are not related to the fact that some countries belong to the euro area. Furthermore, Eastern European countries are also divided in two clubs, with a more direct effect of belonging to the euro zone in the composition of the clubs.     

Testing for Convergence Clubs in Income Per Capita: A Predictive Density Approach*

The article proposes a technique, based on the predictive density of the data, conditional on the parameters of the model, to jointly tests for groups of unknown size in a panel and to estimate the parameters of each group. The procedure is applied to the problem of identifying convergence clubs in scaled income per capita data. The steady‐state distribution of European regional data clusters around four poles of attraction with different economic features. The distribution of income per capita of OECD countries has two poles of attraction and each group clearly identifiable economic characteristics. We share the uncommonness of being different. J. P. Roche     

Convergence patterns in financial development: evidence from club convergence

This article analyzes the degree of convergence of financial development for a panel of 50 countries. We apply the methodology of Phillips and Sul (Econometrica 75:1771?C1855, 2007) to various indicators of financial development to assess the existence of convergence clubs. We consider ten alternative indicators of financial development that various researchers use to proxy for the degree of financial development in countries. Overall, the results do not support the hypothesis that all countries converge to a single equilibrium state in financial development. Nevertheless, strong evidence exists of club convergence. Countries demonstrate a high degree of convergence in the sense that in the majority of financial indexes they form only two or three convergence clubs, depending on the measure of financial development used. We also apply the Phillips and Sul method to two real variables, per capita output and fixed capital investment to GDP, and find strong evidence of five and four distinct convergence clubs, respectively. Finally, we compare the various convergence clubs associated with financial development indicators to those clubs for per capita output and fixed capital investment to GDP. We conclude that strong evidence supports the correspondence between the convergence clubs for financial development and those two real variables.     

Convergence behavior of carbon dioxide emissions in China

In view of global warming, the concept of a low carbon world economy has been brought to center stage. In this paper, a systematical empirical investigation of the convergence behavior of carbon dioxide emissions in China is conducted based on provincial data for the period of 1995–2011. Using the log t test developed by Phillips and Sul (2007), evident divergence at the country level and convergence to three steady state equilibriums at provincial level was identified. Furthermore, estimates from the ordered logit model uncover important determinants underlying the formation of clubs, including the per capita GDP, energy consumption structure, energy intensity, and initial levels of economic development. The results from this study contribute to a more in-depth understanding of the carbon dioxide emissions status quo in China and serves as reference when launching region-based emissions mitigation policies.     

Regional income inequality in China revisited: A perspective from club convergence

Growing income inequality in China has elicited considerable concern, and consensus has not been reached regarding whether regional income converges into one common steady state. The controversy may be attributed to the various definitions and methodologies for testing convergence. This study analyzes regional income inequality and convergence in China from the perspective of club convergence proposed by Phillips and Sul (2007). Instead of one convergence at the national level, we determine that provincial incomes are converging into two clubs: seven east-coastal provinces (Shanghai, Tianjin, Jiangsu, Zhejiang, Guangdong, Shandong, and Fujian) and Inner Mongolia are converging into a high income club, and the remaining provinces are converging into a low income club. In addition, we obtain strong evidence that income inequality within a club decreases, while that between clubs deteriorates over time. Between-club inequality is associated with investment in physical and human capital, as well as population growth rates.     

Club convergence analysis of regional ecological efficiency in China

This paper adopts a network data envelopment analysis (DEA) model combined with a window analysis approach to evaluate the ecological efficiency (eco‐efficiency) of 30 regions in China over 2000–2015. We also investigate the existence of eco‐efficiency convergence clubs among these regions and analyse the important factors that drive eco‐efficiency club formation. Our results reveal that, overall, Chinese regional eco‐efficiency deteriorated from 2000 to 2015. We find that there is a significant regional disparity in eco‐efficiency. Our convergence analysis indicates that Chinese regions converge into three eco‐efficiency clubs, suggesting that common economic and environment policies might have a limited impact on promoting regional eco‐efficiency and regionally‐tailored policies need to be designed. Finally, we find that forest coverage, R&D expenditure and pollution punishment are important determinants of convergence club membership.     

Convergence clubs in Latin America

The aim of this work is to identify convergence clubs in 17 Latin American countries in terms of GDP per capita during the period 1990–2014. To do this, we apply the methodology developed by Phillips-Sul in order to identify the different convergence clubs on the path of growth in the Latin American economy over this period. The empirical results strongly support the existence of convergence clubs, indicating that the Latin American economy consists of four groups, each converging towards its own steady-state path, with two countries being divergent.     

Nonstationarity and Stochastic Stability of Relative Income Clubs

The recent literature on “convergence” of cross‐country per capita incomes has been dominated by the two hypotheses of “global convergence” and “club‐convergence,” pertaining to limits of estimated income distribution dynamics. Utilizing a new measure of “stochastic stability,” we establish two stylized facts regarding short‐ and medium‐term distribution dynamics. The first is non‐stationarity of transition dynamics, in the sense of changing transition kernels, and the second is emergence, disappearance, and re‐emergence of a “stochastically stable” middle income group. This middle income group emerges as the gap between rich and poor clubs gets larger, and it changes the dynamics of transition to and from the rich and poor clubs, eventually narrowing the gap between the poor and rich as the middle club vanishes. Analyzing the stochastic stability of middle‐income groups is thus a first step toward understanding higher‐order dynamics of narrowing or widening of the gap between rich and poor countries.     

Technology,convergence, and growth in the European Union

This paper contains an empirical analysis of growth and convergence in the European Union using a cross-country data set covering the period 1950–92. It seeks an answer to the question why some countries in Europe manage to catch up, while others, most notably the poorest ones, apparently do not. The empirical evidence provided in the paper points to several responsible factors. The distance of the economy to the technological leader differed across economies, which contributed to differences in convergence and growth behavior. In addition, the finding of conditional convergence implies that economies converge to different steady state levels of income per capita. Poor economies, like Portugal, Greece, Spain, and Ireland, presumably converge to a lower steady state level of income per capita, which leads to persistent differences in income per capita. Funding for this project was provided in part by the Securities Industry Foundation for Economic Education, the Council on Economic Education in Maryland, and the Towson State University Faculty Development and Research Committee.     

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.     

Nonlinearities in economic growth and club convergence

This paper deals with heterogeneity and nonlinearities in the growth process by developing a two-stage strategy to identify and estimate a club convergence model with threshold externalities. Because of identification and collinearity problems, we develop an entropy-based estimation procedure which simultaneously takes account of ill-posed and ill-conditioned inference problems. First, clubs are identified by introducing a mapping structure in a conditional convergence model. Finally, we estimate a multiple club convergence model, where clubs correspond to subsets of total observations. Our procedure is applied to assess the existence of club convergence for a large sample of countries (1965–2008).     

Testing convergence of European regions: A semiparametric approach

We provide a reappraisal of income convergence across European regions over the last two decades by using a semiparametric partially linear model to approximate the relationship between the average growth rate of GDP per capita and the initial GDP per capita. Estimation results point out both country heterogeneity and non-linearity in the convergence process. The findings suggest that low income regions, in particular those from new adhesion countries, diverge while medium income regions converge and that there is no evidence of convergence for high income regions.     

Assessment of regional productive performance of European health systems under a metatechnology framework

Within last seventy years, healthcare spending in Europe has grown faster than national income. However, this does not always translate into good health indicators, suggesting a problem of efficiency in different European health systems. This paper analyzes the efficiency of such systems for 185 European regions in 17 countries by grouping them into three clusters according to their institutional setting: regulation, funding and service provision. We investigate their productive performance by adopting a metafrontier framework for exploring the role of technological spillovers. Our findings suggest that the three European health systems show similar efficiency performance; the best performers are regions that have adopted social healthcare insurance; kernel analysis indicates that there is convergence toward a single club in each frontier. Finally, we find a dramatic change in the convergence process after the nancial crisis, with European regions converging toward different groups with different levels of efficiency.     

Convergence and catching up in ASEAN: a comparative analysis

The increasing diversity of average growth rates and income levels across countries has generated a large literature on testing the income convergence hypothesis. Most countries in South-East Asia, particularly the five founding ASEAN member countries (ASEAN-5), have experienced substantial economic growth, with the pace of growth having varied substantially across countries. Recent empirical studies have found evidence of several convergence clubs, in which per capita incomes have converged for selected groupings of countries and regions. This paper applies different time series tests of convergence to determine if there is a convergence club for ASEAN-5, as well as ASEAN-5 and the USA. The catching up hypothesis states that the lagging country, with low initial income and productivity levels, will tend to grow more rapidly by copying the technology of the leader country, without having to bear the associated costs of research and development. Given the important effects of technological change on growth, this paper also examines whether ASEAN-5 is catching up technologically with the USA.