Testing Convergence in Income Distribution*
Yong Bao () and
Shatakshee Dhongde ()
Oxford Bulletin of Economics and Statistics, 2009, vol. 71, issue 2, 295-302
The generalized method of moments (GMM) estimator is often used to test for convergence in income distribution in a dynamic panel set‐up. We argue that though consistent, the GMM estimator utilizes the sample observations inefficiently. We propose a simple ordinary least squares (OLS) estimator with more efficient use of sample information. Our Monte Carlo study shows that the GMM estimator can be very imprecise and severely biased in finite samples. In contrast, the OLS estimator overcomes these shortcomings.
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