Twin Peaks or Three Components? - Analyzing the World\'s Cross-Country Distribution of Income
AbstractIn this paper we analyze the world´s cross-national distribution of income and its evolution from 1970 to 2003. We argue that modeling this distribution by a finite mixture and investigating its number of components has advantages over nonparametric inference concerning the number of modes. In particular, the number of components of the distribution does not depend on the scale chosen (original or logarithmic), whereas the number of modes does. Instead of so-called twin-peaks, we find that the distribution appears to have only two components in 1970-1975, but consists of three components from 1976 onwards, a low, average and high mean-income group, with group means diverging over time. Here we apply recently developed modified likelihood ratio tests for the number of components in a finite mixture. The intra distributional dynamics are investigated in detail using posterior probability estimates.
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Bibliographic InfoPaper provided by Ibero-America Institute for Economic Research in its series Ibero America Institute for Econ. Research (IAI) Discussion Papers with number 162.
Length: 37 pages
Date of creation: 11 Sep 2007
Date of revision:
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More information through EDIRC
cross-national income distribution; mixture models; modified likelihood ratio test; nonparametric density estimation;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
- F01 - International Economics - - General - - - Global Outlook
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-24 (All new papers)
- NEP-DEV-2007-11-24 (Development)
- NEP-ECM-2007-11-24 (Econometrics)
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