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Stochastic Convergence Across U.S. States

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Abstract

Unit root tests suggest that shocks to relative income across U.S. states are permanent, which contradicts the stochastic convergence hypothesis. We suggest that this finding is due to the well-known low-power problem of unit root tests in the presence of high persistence (i.e., low speed of convergence) and small samples. First, interval estimates of the largest autoregressive root for the relative income in the 48 U.S. contiguous states are quite wide, including many alternatives that are persistent but stable. Second, interval estimates of the half-life of relative income shocks that are robust to high persistence and small samples suggest that in most cases shocks die out within zero to ten years. Third, estimation of a fractionally integrated model for the relative income process suggests strong evidence of mean reversion in the data. These findings provide ample support for the stochastic convergence hypothesis.

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  • Mello, Marcelo, 2011. "Stochastic Convergence Across U.S. States," Macroeconomic Dynamics, Cambridge University Press, vol. 15(2), pages 160-183, April.
    • Handle: RePEc:cup:macdyn:v:15:y:2011:i:02:p:160-183_99
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    Cited by:

    1. Miles, William, 2020. "Regional convergence-and divergence-in the US," Research in Economics, Elsevier, vol. 74(2), pages 131-139.
    2. Bandyopadhyay, Sanghamitra, 2018. "The absolute Gini is a more reliable measure of inequality for time dependent analyses (compared with the relative Gini)," Economics Letters, Elsevier, vol. 162(C), pages 135-139.
    3. Penna, Christiano Modesto & Linhares, Fabricio Carneiro, 2013. "Há controvérsia entre análises de beta e sigma-convergência no Brasil?," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 67(1), April.
    4. Breinlich, Holger & Ottaviano, Gianmarco I.P. & Temple, Jonathan R.W., 2014. "Regional Growth and Regional Decline," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 4, pages 683-779, Elsevier.
    5. Rosenthal, Stuart S. & Ross, Stephen L., 2015. "Change and Persistence in the Economic Status of Neighborhoods and Cities," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1047-1120, Elsevier.
    6. Holmes, Mark J. & Otero, Jesús & Panagiotidis, Theodore, 2014. "A Note On The Extent Of U.S. Regional Income Convergence," Macroeconomic Dynamics, Cambridge University Press, vol. 18(7), pages 1635-1655, October.
    7. Up Lim, 2016. "Regional income club convergence in US BEA economic areas: a spatial switching regression approach," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 56(1), pages 273-294, January.
    8. Mello, Marcelo, 2010. "Stochastic Convergence Across Brazilian States," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 30(1), October.
    9. Up Lim & Donghyun Kim, 2015. "Toward Sustainable Economic Growth: A Spatial Panel Data Analysis of Regional Income Convergence in US BEA Economic Areas," Sustainability, MDPI, vol. 7(8), pages 1-17, July.
    10. Theodoros Arvanitopoulos & Vassilis Monastiriotis & Theodore Panagiotidis, 2021. "Drivers of convergence: The role of first- and second-nature geography," Urban Studies, Urban Studies Journal Limited, vol. 58(14), pages 2880-2900, November.
    11. Ragdad Cani Miranti, 2021. "Is regional poverty converging across Indonesian districts? A distribution dynamics and spatial econometric approach," Asia-Pacific Journal of Regional Science, Springer, vol. 5(3), pages 851-883, October.
    12. repec:esx:essedp:729 is not listed on IDEAS
    13. Up Lim, 2016. "Regional income club convergence in US BEA economic areas: a spatial switching regression approach," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 56(1), pages 273-294, January.
    14. Yiannis Karavias & Elias Tzavalis, 2014. "Testing for unit roots in panels with structural changes, spatial and temporal dependence when the time dimension is finite," Discussion Papers 14/03, University of Nottingham, Granger Centre for Time Series Econometrics.
    15. Sanghamitra Bandyopadhyay, 2021. "The persistence of inequality across Indian states: A time series approach," Review of Development Economics, Wiley Blackwell, vol. 25(3), pages 1150-1171, August.
    16. Margherita Gerolimetto & Stefano Magrini, 2017. "A Novel Look at Long-run Convergence Dynamics in the United States," International Regional Science Review, , vol. 40(3), pages 241-269, May.
    17. Ballinger, T. Parker & Habegger, Wendy & Jones, Clifton T. & Thompson, Mark A., 2016. "Convergence in Venture Capital Investments: Evidence from a Panel of 18 US Regions," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 46(2), December.

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