Reopening the Convergence Debate when Sharp Breaks and Smooth Shifts Wed, 1870-2010

Omid Ranjbar (), Tsangyao Chang, Chien-Chiang Lee () and Zahra (Mila) Elmi ()
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Zahra (Mila) Elmi: Faculty of Economics, University of Mazandaran, Babolsar, Iran.

Iranian Economic Review (IER), 2016, vol. 20, issue 3, 356-377

Abstract: This paper attempts to re-investigate the catching-up (stochastic convergence) hypothesis among the selected 16 OECD countries applying the time series approach of convergence hypothesis with annual data over one century. To reach this aim, we propose a model which specifies a trend function, incorporating both types of structural breaks – that is, sharp breaks and smooth shifts using dummy variables and Fourier function respectively. In order to detect the sharp breaks, we apply the multiple structural break models (Bai & Perron, 1998) and the Fourier function proposed in Becker et al. (2004) to capture the smooth shifts. Our results show that most divergence process occurred over World War I (WWI) and World War II (WWII). Among the 69 estimated break points occurred over the period 1870-2010, 75 % of those break points result in catching-up and the remainder results in divergence.

Keywords: Convergence; Trend Function; Smooth Shifts; Sharp Breaks; Catching-up. (search for similar items in EconPapers)
Date: 2016
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