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Investigating the Presence of Regional Economic Growth Convergence in the Philippines using Kalman Filter

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  • Mapa, Dennis S
  • Sandoval, Monica Flerida B
  • Yap, David Joseph Emmanuel B

Abstract

This paper investigates the presence of stochastic and dynamic convergence of the 14 regional economies in the Philippines in terms of per capita Gross Regional Domestic Product (GRDP) using regional panel data from 1988 to 2007. Stochastic convergence, which indicates convergence of regions in the long-run, is tested using Levin, Lin & Chu (LLC) and Im, Pesaran & Shin (IPS) panel unit root tests. The presence of convergence, on one hand, indicates that the economically laggard regions are gaining on the economically better-performing regions with respect to per capita GRDP. On the other hand, the lack of convergence indicates a need to reevaluate existing regional and national economic policies on development. Dynamic convergence reveals several convergence characteristics of individual regions over time. Dynamic convergence is determined by the time-varying parameter (TVP) model derived using the Kalman Filter. The paper proceeds to examine the individual convergence behavior of each region based on the value of the estimate of the parameter of the TVP. The results show that out of the 14 regions studied, seven regions are found to converge towards the average of the national per capita GDP growth rate over 1988 to 2007 while six regions lag behind the average of the national per capita GDP growth rate over the same period. No region converges towards the economic growth rate of National Capital Region, the lead region used in the study.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20681.

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Date of creation: Jan 2009
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Handle: RePEc:pra:mprapa:20681

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Related research

Keywords: Panel Unit Root Test; Time-varying Parameter (TVP) Model; Kalman Filter; Stochastic Convergence; Dynamic Convergence;

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References

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  1. Manasan, Rosario G. & Mercado, Ruben G., 1999. "Regional Economic Growth and Convergence in the Philippines: 1975-1997," Discussion Papers DP 1999-13, Philippine Institute for Development Studies.
  2. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  3. 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.
  4. Orbeta, Aniceto Jr. C. & Manasan, Rosario G. & de Guzman, Generoso & Reyes, Celia M., 1999. "Social Impact of the Regional Financial Crisis in the Philippines," Discussion Papers DP 1999-14, Philippine Institute for Development Studies.
  5. Michael Beenstock & Daniel Felsenstein, 2008. "Regional Heterogeneity, Conditional Convergence and Regional Inequality," Regional Studies, Taylor & Francis Journals, vol. 42(4), pages 475-488.
  6. Mercado, Ruben G., 2002. "Regional Development in the Philippines: A Review of Experience, State of the Art and Agenda for Research and Action," Discussion Papers DP 2002-03, Philippine Institute for Development Studies.
  7. Austria, Myrna S., 2000. "Assessing the Competitiveness of the Philippine IT Industry," Discussion Papers DP 2000-03, Philippine Institute for Development Studies.
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Cited by:
  1. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2013. "On the Stratonovich – Kalman - Bucy filtering algorithm application for accurate characterization of financial time series with use of state-space model by central banks," MPRA Paper 50235, University Library of Munich, Germany.

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