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Convergence Hypotheses are Ill-Posed:Non-stationarity of Cross-Country Income Distribution D

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  • Deockhyun Ryu
  • Mahmoud A. El-Gamal
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    Abstract

    The recent literature on “convergence� of cross-country per capita incomes has been dominated by two competing hypotheses: “global convergence� and “club-convergence�. This debate has recently relied on the study of limiting distributions of estimated income distribution dynamics. Utilizing new measures of “stochastic stability�, we establish two stylized facts that question the fruitfulness of the literature’s focus on asymptotic income distributions. The first stylized fact is non-stationarity of transition dynamics, in the sense of changing transition kernels, which renders all “convergence� hypotheses that make long-term predictions on income distribution, based on relatively short time series, less meaningful. The second stylized fact is the periodic emergence, disappearance, and re-emergence of a “stochastically stable� middle-income group. We show that the probability of escaping a low-income poverty-trap depends on the existence of such a stable middle income group. While this does not answer the perennial questions about long-term effects of globalization on the cross-country income distribution, it does shed some light on the types of environments that are conducive to narrowing/

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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 576.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:feam04:576

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    Keywords: global income distribution; convergence clubs; transition kernel; stochastic stability;

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    1. Paapaa, Richard & van Dijk, Herman K., 1998. "Distribution and mobility of wealth of nations," European Economic Review, Elsevier, vol. 42(7), pages 1269-1293, July.
    2. Bulli, Sandra, 2001. "Distribution Dynamics and Cross-Country Convergence: A New Approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(2), pages 226-43, May.
    3. Danny Quah, 1992. "Empirical cross-section dynamics in economic growth," Discussion Paper / Institute for Empirical Macroeconomics 75, Federal Reserve Bank of Minneapolis.
    4. Quah, Danny T, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," Economic Journal, Royal Economic Society, vol. 106(437), pages 1045-55, July.
    5. Stanley Fischer, 2003. "Globalization and Its Challenges," American Economic Review, American Economic Association, vol. 93(2), pages 1-30, May.
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    8. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
    9. Desdoigts, Alain, 1999. " Patterns of Economic Development and the Formation of Clubs," Journal of Economic Growth, Springer, vol. 4(3), pages 305-30, September.
    10. Michael Kremer & Alexei Onatski & James Stock, 2001. "Searching for Prosperity," NBER Working Papers 8250, National Bureau of Economic Research, Inc.
    11. Johnson, Paul, 1999. "A Nonparametric Analysis of Income Convergence Across the US States," Vassar College Department of Economics Working Paper Series 46, Vassar College Department of Economics.
    12. Bianchi, Marco, 1997. "Testing for Convergence: Evidence from Non-parametric Multimodality Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(4), pages 393-409, July-Aug..
    13. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
    14. Danny Quah, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEP Discussion Papers dp0280, Centre for Economic Performance, LSE.
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