Convergence of Income Among Provinces in Canada – An Application of GMM Estimation

Mukesh Ralhan and Ajit Dayanandan
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Ajit Dayanandan: Department of Economics, University of Northern B.C.

No 502, Econometrics Working Papers from Department of Economics, University of Victoria

Abstract: This paper tests for unconditional and conditional income convergence among provinces in Canada during the period 1981-2001. We apply the first-differenced GMM estimation technique to the dynamic Solow growth model and compare the results with the other panel data approaches such as fixed and random effects. The method used in this paper accounts for not only province-specific initial technology levels but also for the heterogeneity of the technological progress rate between the ‘richer’ and ‘not so richer’ provinces of Canada. One of the findings of the paper is that the Canadian provinces do not share a common technology progress rate and a homogeneous production function. The findings of the study suggest a convergence rate of around 6% to 6.5% p.a. whereas the previous studies using OLS and other techniques reported a convergence rate of around 1.05 % for per capita GDP and 2.89% p.a. for personal disposable income among Canadian provinces.

Keywords: Provincial convergence; Canada; Panel data; GMM (search for similar items in EconPapers)
JEL-codes: C14 H4 O40 O41 O53 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2005-03-10
Note: ISSN 1485-6441
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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