Note on the interpretation of the convergence speed in the dynamic panel model

Masahiko Shibamoto and Yoshiro Tsutsui ()

Applied Economics Letters, 2014, vol. 21, issue 8, 533-535

Abstract: Studies using dynamic panel regression approach have found a high speed of income convergence among the world and the regional economies. For example, Lee et al. (1997, 1998) report 30% per annum. This note argues that their estimates of the convergence speed can be seriously overstated. Using a factor model, we show that the coefficient of the lagged income in their specification may not be the long-run convergence speed, but the adjustment speed of the short-run deviation from the long-run equilibrium path. We give an example of an empirical analysis, where the short-run adjustment speed is about 40%.

Date: 2014
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Working Paper: Note on the Interpretation of Convergence Speed in the Dynamic Panel Model (2011)
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DOI: 10.1080/13504851.2013.872754

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