Measuring Convergence using Dynamic Equilibrium Models: Evidence from Chinese Provinces

Lei Pan (), Olaf Posch and Michel van der Wel ()

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We propose a model to study economic convergence in the tradition of neoclassical growth theory. We employ a novel stochastic set-up of the Solow (1956) model with shocks to both capital and labor. Our novel approach identifies the speed of convergence directly from estimating the parameters which determine equilibrium dynamics. The inference on the structural parameters is done using a maximum-likelihood approach. We estimate our model using growth and population data for China’s provinces from 1978 to 2010. We report heterogeneity in the speed of convergence both across provinces and time. The Eastern provinces show a higher tendency of convergence, while there is no evidence of convergence for the Central and Western provinces. We find empirical evidence that the speed of convergence decreases over time for most provinces.

Keywords: Economic convergence; Dynamic stochastic equilibrium models; Solow model; Structural estimation (search for similar items in EconPapers)
JEL-codes: C13 E32 O40 (search for similar items in EconPapers)
Pages: 30
Date: 2012-05-30
New Economics Papers: this item is included in nep-dge and nep-tra
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