Note on the Interpretation of Convergence Speed in the Dynamic Panel Model
AbstractStudies using the dynamic panel regression approach have found the speed of income convergence among the world and regional economies to be high. For example, Lee et al. (1997, 1998) report the income convergence speed to be 30% per annum. This note argues that their estimates may be seriously overstated. Using a factor model, we show that the coefficient of the lagged income in their specification may not be the long-run convergence speed, but the adjustment speed of the short-run deviation from the long-run equilibrium path. We give an example of an empirical analysis, where the short-run adjustment speed is about 40%.
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Bibliographic InfoPaper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2011-04.
Length: 8 pages
Date of creation: Jan 2011
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Convergence speed; Dynamic panel regression; Factor model;
Find related papers by JEL classification:
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-26 (All new papers)
- NEP-ECM-2011-03-26 (Econometrics)
- NEP-ETS-2011-03-26 (Econometric Time Series)
- NEP-GEO-2011-03-26 (Economic Geography)
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