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Income convergence: the Dickey-Fuller test under the simultaneous presence of stochastic and deterministic trends

Manuel Gómez-Zaldívar and Daniel Ventosa-Santaulària

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate the efficiency of the Dickey-Fuller (DF) test as a tool to examine the convergence hypothesis. In doing so, we first describe two possible outcomes, overlooked in previous studies, namely Loose Catching-up and Loose Lagging-behind. Results suggest that this test is useful when the intention is to discriminate between a unit root process and a trend stationary process, though unreliable when used to differentiate between a unit root process and a process with both deterministic and stochastic trends. This issue may explain the lack of support for the convergence hypothesis in the aforementioned literature.

Keywords: Divergence; Loose Catching-up/Lagging-behind; Convergence; De- terministic and Stochastic Trends. (search for similar items in EconPapers)
JEL-codes: C32 O40 (search for similar items in EconPapers)
Date: 2007
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Published in Annales d'Economie et de Statisque 99/100 (2010): pp. 429-445

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Working Paper: Income Convergence: The Dickey-Fuller Test under the Simultaneous Presence of Stochastic and Deterministic Trends (2007) Downloads
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