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Regime-Dependent output convergence in Latin America

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  • Mark J.Holmes

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Abstract

This paper test for long-run output convergence between a sample of eight Latin American countries and over the study period 1900-2003. The key contribution of this paper is in term of the econometric methodology where non-stationarity of log real per capita income differentials is tested within a Markov regime-switching framework. In contrast to existing studies, this paper defines two new concepts of output convergence where one allows for the possibility that output differentials behaviour either switches between stationary and non-stationary regimes (partial convergence), or switches between stationary regimes characterised by differing degrees of persistence (varied convergence). Whereas standard univariate and panel data unit root testing clearly suggest that output differentials are non-stationary, employment of the regime-switching methodology indicates that most of the sample is characterised by the existence of two distinct stationary regimes. Furthermore, it is argued that the often-cit

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Bibliographic Info

Article provided by University of Chile, Department of Economics in its journal Estudios de Economia.

Volume (Year): 33 (2006)
Issue (Month): 1 Year 2006 (June)
Pages: 65-81

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Handle: RePEc:udc:esteco:v:33:y:2006:i:1:p:65-81

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Web page: http://www.econ.uchile.cl/
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Keywords: Output convergence; regime-switching; stationarity; unit root tests.;

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  1. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  2. Rayaprolu Nagaraj & Aristomène Varoudakis & Marie-Ange Véganzonès, 1998. "Long-Run Growth Trends and Convergence Across Indian States," OECD Development Centre Working Papers 131, OECD Publishing.
  3. Bernard, A.B. & Durlauf, S.N., 1994. "Interpreting Tests of the Convergence Hypothesis," Working papers 9401r, Wisconsin Madison - Social Systems.
  4. Paul Evans, 1997. "How Fast Do Economies Converge?," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 219-225, May.
  5. Bruce E. Hansen, 1996. "Sample Splitting and Threshold Estimation," Boston College Working Papers in Economics 319., Boston College Department of Economics, revised 12 May 1998.
  6. Kaddour Hadri, 1999. "Testing For Stationarity In Heterogeneous Panel Data," Research Papers 1999_04, University of Liverpool Management School.
  7. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  8. Chumacero, Romulo A. & Fuentes, J. Rodrigo, 2006. "Chilean growth dynamics," Economic Modelling, Elsevier, vol. 23(2), pages 197-214, March.
  9. Afonso Ferreira, 2000. "Convergence in Brazil: recent trends and long-run prospects," Applied Economics, Taylor & Francis Journals, vol. 32(4), pages 479-489.
  10. Danny Quah, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEP Discussion Papers dp0280, Centre for Economic Performance, LSE.
  11. Bernard, Andrew B & Durlauf, Steven N, 1995. "Convergence in International Output," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 97-108, April-Jun.
  12. S. Dobson & C. Ramlogan, 2002. "Economic Growth and Convergence in Latin America," Journal of Development Studies, Taylor & Francis Journals, vol. 38(6), pages 83-104.
  13. Yin-Wong Cheung & Antonio Garcia Pascual, 2004. "Testing for output convergence: a re-examination," Oxford Economic Papers, Oxford University Press, vol. 56(1), pages 45-63, January.
  14. Phillips, P. C. B. & Ouliaris, S., 1988. "Testing for cointegration using principal components methods," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 205-230.
  15. Chumacero Rómulo A., 2006. "On the Power of Absolute Convergence Tests," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 10(2), pages 1-25, May.
  16. Mohsin S. Khan & Manmohan S. Kumar, 1993. "Public and Private Investment and the Convergence of Per Capita Incomes in Developing Countries," IMF Working Papers 93/51, International Monetary Fund.
  17. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  18. Li, Qing & Papell, David, 1999. "Convergence of international output Time series evidence for 16 OECD countries," International Review of Economics & Finance, Elsevier, vol. 8(3), pages 267-280, September.
  19. Baumol, William J, 1986. "Productivity Growth, Convergence, and Welfare: What the Long-run Data Show," American Economic Review, American Economic Association, vol. 76(5), pages 1072-85, December.
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