A Pair-Wise Approach to Testing for Output and Growth Convergence

Mohammad Pesaran

No 1313, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper proposes a pair-wise approach to testing for output convergence that considers all N(N-1)/2 possible pairs of log per capita output gaps across N economies. A general probabilistic definition of output convergence is also proposed, which suggests that all such output gap pairs must be stationary with a constant mean. The approach is compatible with individual output series having unit roots, does not involve the choice of a reference country in computation of output gaps, and can be applied when N is large relative to T (the time dimension of the panel). The proposed test is applied to output series in the Penn World Tables over 1950-2000, as well as to Maddion’s historical series over 1870-2000. Overall, the results do not support output convergence, and suggest that the findings of convergence clubs in the literature might be spurious. However, significant evidence of growth convergence is found, a result which is reasonably robust to the choice of the sample period and country groupings. Non-convergence of log per capita outputs combined with growth convergence suggests that while common technological progress seems to have been diffusing reasonably widely across economies, there are nevertheless important countryspecific factors (for example, wars, famines, revolutions, regime and institutional changes) that render output gaps highly persistent, such that we can not be sure that the probability for the outputs gaps to lie within a fixed range will be non-zero.

Keywords: economic growth; panel data models; convergence; common technological shocks (search for similar items in EconPapers)
JEL-codes: C32 C33 D90 O47 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2004-09
New Economics Papers: this item is included in nep-dev, nep-ecm and nep-ets
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Citations: View citations in EconPapers (6)

Published - published in: Journal of Econometrics, 2007, 138 (1), 312-355

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Related works:
Journal Article: A pair-wise approach to testing for output and growth convergence (2007)
Working Paper: A Pair-wise Approach to Testing for Output and Growth Convergence (2004)
Working Paper: A Pair-Wise Approach to Testing for Output and Growth Convergence (2004)
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