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World economic convergence: Does the estimation methodology matter?

Evangelia Desli () and A. Gkoulgkoutsika

Economic Modelling, 2020, vol. 91, issue C, 138-147

Abstract: An extant empirical literature produces evidence on economic convergence using methods that assume an underlying deterministic trend. Competing approaches that assume a stochastic trend, however, produce only limited evidence of economic convergence. In this paper we address this puzzling feature of the literature by providing a comprehensive analysis of economic convergence using three methodologies that cover all possible underlying assumptions: deterministic, stochastic, and combination trends. We also develop a method for an overall Stochastic Convergence Rate Index, that combines the outcomes of alternative stochastic tests and provides a single measure of the intensity of stochastic convergence. We consider 135 economies over the period 1980–2017. We find that economic convergence occurs at a global level through the formation of convergence clubs, and economic convergence emerges as a deterministic rather than a stochastic process. Tests that ignore deterministic trends tend to understate the evidence for convergence.

Keywords: Economic growth; Economic convergence; Beta-convergence; Stochastic convergence; log(t) convergence (search for similar items in EconPapers)
JEL-codes: C32 C33 O47 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:91:y:2020:i:c:p:138-147

DOI: 10.1016/j.econmod.2020.05.027

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