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.     

Global and regional inequality in the distribution of income: Estimation with limited and incomplete data

The paper examines the nature and extent of global and regional inequality using the most recent country level data on inequality drawn from World Bank studies, and real per capita income from the Penn World Tables, for the period 1980–1990. The methodology employed in the paper is based on a mixture of parametric and non-parametric approaches to inequality measurement. It is designed to handle the limited and incomplete nature of income distribution data from different countries. Empirical results show a very high degree of global inequality, but with some evidence of catch-up and convergence between regions.     

Convergence of international output Time series evidence for 16 OECD countries

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.     

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.     

A Time-Series Perspective on Convergence: Australia,UK and USA since 1870*

Tests of the Convergence Hypothesis or the tendency for per capita income levels to narrow over time, have generally utilized cross-sectional data and have usually found conflicting evidence. In this study we utilize time-series data on Australia, UK and USA for the period 1870–1992, and time-series tests, to consider both ‘catching-up2 and ‘long-run convergence’. The paper finds evidence in favour of long-run convergence in per capita income levels for the UK and Australia for the period 1892–1992 and catching-up in the case of UK and USA, and Australia and USA, giving some support for the exogenous approaches to economic growth.     

The new evidence to tendency of convergence in Solow model

This paper tests the hypothesis in the revised endogenous dynamic Solow model that there exists dynamic convergence to the moving steady-state as a single economy grows. The convergence in the revised endogenous dynamic Solow model implies that the real interest rate and the growth rate of income per capita in an economy would move together, i.e., they would be cointegrated in empirical terms. Taking the U.S. economy as our research subject, we test this hypothesis by investigating the cointegration between the U.S. real interest rate and its growth rate of income per capita during a fifty-year period from 1951 to 2000. Our results show that the U.S. real interest rate and its growth rate of income per capita move together over time, providing strong evidence to support the dynamic convergence hypothesis.     

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.     

Do Multinational Enterprises Contribute to Convergence or Divergence? A Disaggregated Analysis of US FDI*

It is widely held that foreign direct investment (FDI) has a positive effect on economic growth. To test this hypothesis, we perform convergence regressions derived from a theoretical model on the impact of FDI on endogenous technological change in small economies. The model includes FDI externalities that enhance growth, but also shows that FDI can crowd out host country income and reduce local innovation. The empirical analysis employs disaggregated US data for various FDI‐related activities—in addition to the conventionally used aggregate FDI stocks and flows. We estimate the net FDI impact on the convergence rate of per‐capita income to US levels, controlling for human development, financial development, and trade. We find that FDI accelerates convergence for high‐income countries only, otherwise slowing it down.     

Disparities in Australian Regional Incomes: Are They Widening or Narrowing?

In this study we examine Australian census data on regional incomes for the period 1976–91. Following a discussion of theories and empirical evidence regarding regional income adjustment, the regional dispersion of per capita income is analysed for the six Australian states and at the sub-state level (statistical divisions, SDs). The coefficient of variation is used as the measure of dispersion, and Gini coefficients are also calculated to analyse income equality within regions. For Australia, the cross-state dispersion of per capita incomes increased over the period, whereas there was neither convergence nor divergence of incomes among Australia's 57 SDs. In addition, the intrastate dispersion of per capita incomes across SDs remained largely unaltered over the period. Gini coefficients indicated that across income strata, the distribution of incomes both within states and within SDs has become more equal.     

Contribution of international ecotourism to comprehensive economic development and convergence in the Central American and Caribbean region

Drawing on the positive experience from Costa Rica, the study examines whether international ecotourism makes a significant contribution to comprehensive economic development for the Central American and Caribbean region and contributes to comprehensive economic convergence. Following a standard empirical growth model, a dynamic panel regression model is estimated using time-series data from 1995 until 2012 for a cross section of seven countries. The interaction of international tourism and various established sustainability indicators is employed allowing ecotourism to be consistently quantified across countries, while numerous country-specific structural characteristics are controlled for. The estimation results show that international ecotourism has a statistically significant positive effect on both traditional economic development (real GDP per capita) and comprehensive economic development (adjusted net savings; ANS per capita), which is a measure of a society’s potential future well-being, thus providing evidence in support of the tourism-led growth hypothesis and pointing towards an important role for ecotourism in driving comprehensive economic convergence.     

Closing the Technology Gap?

This paper focuses on the dimensions shaping the dynamics of technology. We present a model where the knowledge stock of a country grows over time as a function of three main factors: innovation intensity, technological infrastructures, and human capital. The latter two variables determine the absorptive capacity of a country as well as its innovative ability. We then carry out an empirical analysis that investigates the dynamics of technology in a large sample of economies in the last two‐decade period, and studies its relationships with income per capita growth. The results indicate that the cross‐country distributions of technological infrastructures and human capital have experienced a process of convergence, whereas the innovative intensity is characterized by increasing polarization between rich and poor economies. Thus, while the conditions for catching up have generally improved, the increasing innovation gap represents a major factor behind the observed differences in income per capita.     

Outside the Club: New Zealand's economic growth, 1870-1993

Recent tests of the Convergence Hypothesis, or the tendency for per capita income levels to narrow over time, have included a time-series testing approach (see Bernard & Durlauf, 1995, 1996; Oxley & Greasley, 1995, Greasley & Oxley, 1997, 1998a). Results have been mixed, with Bernard & Durlauf finding no evidence of convergence whereas Oxley & Greasley find evidence of two small convergence clubs. This paper adds to the debate by considering a newly created annual per capita income series for New Zealand, 1870-1993. The results show that the series is integrated of order 1, I(1), and neither a single break nor joint breaks overturn the null of a unit root. Combined with results from Greasley & Oxley (1998a, 1998b), this property of New Zealand data is incompatible with her belonging to a UK/Australia convergence club, or converging towards either of the North American economies. New Zealand per capita income growth is idiosyncratic, diverging below the growth rates of traditional trading partners. A conjunction of small size and insular economic policies distinguishes New Zealand's economic development.     

What's Not Converging? East Asia's Relative Performance in Income,Health, and Education*

This paper discusses East Asia's performance in terms of per capita gross domestic product growth rates over the past 40 years and compares that performance to progress primarily on measures of health. It also compares the region to the rest of the world on a set of broader development measures. It looks at the evidence of East Asian regional and global convergence in health and education, alongside evidence from the region matching global evidence of a comparatively weak link between income growth and health and education growth. This finding is echoed by available within‐country evidence from the region. This paper discusses what might be behind these results, suggesting the importance of a few simple supply‐side interventions coupled with the spread of demand for health and education services as sufficient to drive quality‐of‐life convergence.     

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.     

Economic openness and income growth in developing countries: a regional comparative analysis

This article examines and compares the openness–growth relationship between the high-performing Asian economies (HPAEs) and the rest of the developing world (Sub-Saharan Africa-SSA, South East Asia-SEA and Latin America and Caribbean-LAC). We applied the SYS-GMM estimator to a dynamic standard endogenous growth model which relates economic openness to real per capita income growth. A few key findings emerged from this study. First, economic openness led to increase in real per capita GDP growth in HPAEs and SSA, but not in LAC and SEA. Second, openness to trade accelerated income convergence among countries in SSA, SEA, and HPAEs, however, whereas foreign direct investment inflows accelerated income convergence only in SSA, it rather de-accelerated income convergence in HPAEs. Thirdly, the HPAEs recorded higher positive effect of openness on real per capita GDP growth than any of the other developing regions because they created sufficient stock of human capital that enhanced their absorptive capacity of imported advanced technology. They also created a more stable macroeconomic environment which consolidated the income growth gains from openness. The results of this study highlight the importance of the implementation of policies that are complementary to economic openness in promoting economic growth in the developing world.     

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.     

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.     

Income inequality and export prices across countries

This paper provides theory and evidence on the links between income inequality within a destination country and the patterns of trade and export prices. The theoretical framework relates income inequality to product quality and prices using a simple demand composition effect. The model predicts that a more unequal income distribution in a destination country leads to higher average prices, though the effect is nonlinear and disappears for rich enough countries. The predictions are tested using detailed firm‐level data. Controlling for income per capita, prices are systematically higher in more unequal destinations, and the strength of this effect depends on income per capita. Results are particularly important for middle‐income countries and hold only for differentiated goods, and in particular for products with a high degree of vertical differentiation.     

The effects of longevity and distortions on education and retirement

This article studies the impact of longevity and taxation on life-cycle decisions and long run income. Individuals allocate optimally their total lifetime between education, working and retirement. They also decide at each moment how much to save or consume out of their income, and, after entering the labor market, how to divide their time between labor and leisure. The model incorporates experience–earnings profiles and return to education function that follows evidence from the labor literature. In this setup increases in longevity raises the investment in education—time in school—and retirement. The model is calibrated to the US and is able to reproduce observed schooling trends of the last century. It also reproduces the increase in retirement, as the evidence shows. Simulations show that a country equal to the US but with 20% smaller longevity will be 25% poorer, mostly because of the impact of life expectancy on human capital formation and retirement. In this economy labor taxes have a strong impact on the per capita income, as it decreases labor effort, time at school and retirement age, in addition to the general equilibrium impact over physical capital.     

TESTING CATCHING‐UP BETWEEN THE DEVELOPING COUNTRIES: “GROWTH RESISTANCE” AND SOMETIMES “GROWTH TRAGEDY”

This paper provides empirical evidence that there is no convergence between the GDP per‐capita of the developing countries since 1950. Relying upon recent econometric methodologies (non‐stationary long‐memory models, wavelet models and time‐varying factor representation models), we show that the transition paths to long‐run growth (the catch‐up dynamics) are very persistent over time and non‐stationary, thereby yielding a variety of potential steady states (conditional convergence). Our findings do not support the idea according to which the developing countries share a common factor (such as technology) that eliminates per‐capita output divergence in the very long run. Instead, we conclude that growth is an idiosyncratic phenomenon that yields different forms of transitional economic performance: growth tragedy (some countries with an initial low level of per‐capita income diverge from the richest ones), growth resistance (with many countries experiencing a low speed of growth convergence), and rapid convergence.