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Convergence and Long Run Uncertainty

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Pablo Pincheira

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Abstract

In this paper the neoclassical convergence hypothesis is tested for the thirteen regions of Chile using crosssection and time-series techniques. Cross-section analysis in combination with a Bayesian Modeling Averaging strategy supports the convergence hypothesis, despite of some instability detected in the estimated speed of convergence. When applying time-series based tests, the no convergence null hypothesis cannot be rejected at usual significance levels. When clustering the Chilean regions into three different groups, however, evidence of cointegration within these groups is found, indicating that the regional growth process in Chile is driven by a lower number of common trends. The implementation of both cross-section and time-series tests allows coverage of two different situations: economies in transition dynamics and economies in stationary distribution. Because cross-section and time-series tests place different implications on the data one can claim that under the assumption that Chilean regions are in transition towards a stationary distribution, the convergence hypothesis is supported by the data. If one assumes, however, that Chilean regions already achieved their limiting distribution, the convergence hypothesis is not supported by the data.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 391.

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Date of creation: Dec 2006
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Handle: RePEc:chb:bcchwp:391

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  1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
  2. Durlauf, Steven N & Johnson, Paul A, 1995. "Multiple Regimes and Cross-Country Growth Behaviour," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 365-84, Oct.-Dec.. [Downloadable!] (restricted)
  3. Easterly, William & Loayza, Norman & Montiel, Peter, 1997. "Has Latin America's post-reform growth been disappointing?," Journal of International Economics, Elsevier, vol. 43(3-4), pages 287-311, November. [Downloadable!] (restricted)
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  4. Roberto Duncan & J. Rodrigo Fuentes, 2005. "Convergencia Regional en Chile: Nuevos Tests, Viejos Resultados," Working Papers Central Bank of Chile 313, Central Bank of Chile. [Downloadable!]
  5. Durlauf, Steven N. & Quah, Danny T., 1999. "The new empirics of economic growth," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 4, pages 235-308 Elsevier. [Downloadable!] (restricted)
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  6. 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. [Downloadable!] (restricted)
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  7. Canova, Fabio & Marcet, Albert, 1995. "The Poor Stay Poor: Non-Convergence Across Countries and Regions," CEPR Discussion Papers 1265, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Rómulo A. Chumacero, 2002. "Is There Enough Evidence Against Absolute Convergence?," Working Papers Central Bank of Chile 176, Central Bank of Chile. [Downloadable!]
  9. Perron, Pierre, 1988. "Trends and random walks in macroeconomic time series : Further evidence from a new approach," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 297-332. [Downloadable!] (restricted)
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  10. repec:att:wimass:192036 is not listed on IDEAS
  11. Roberto Duncan & Rodrigo Fuentes, 2006. "Regional Convergence in Chile: New Tests, Old Results," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 43(127), pages 81-112. [Downloadable!]
  12. 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. [Downloadable!] (restricted)
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