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Convergence in Provincial-Level South African House Prices: Evidence from the Club Convergence and Clustering Procedure

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Author Info

  • Nicholas Apergis

    ()
    (Department of Banking and Financial Management, University of Piraeus, Greece)

  • Beatrice D. Simo-Kengne

    ()
    (Department of Economics, University of Pretoria)

  • Rangan Gupta

    ()
    (Department of Economics, University of Pretoria)

Abstract

This empirical study analyses the long run behaviour of provincial house prices in South Africa based on the club convergence and clustering procedure of Phillips and Sul (2007). Using quarterly data covering the period of 1974Q1 to 2012Q4, 1976Q2 to 2012Q4, 1974Q1 to 2012 Q4 and 1977Q3 to 2012Q4 for the entire, large, medium and small-middle segments of the housing market, respectively, we test the law of one price across nine provinces. The empirical findings suggest that the nine provinces do not form a homogeneous convergence club. In particular, the aggregate housing market supports the presence of three convergence clubs with the tendency of provinces to converge or diverge varying across subsequent segments. Unlike the middle-small segment which consists of two convergence clubs of seven and two provinces, the middle-large and middle-medium segments are consistent with three convergence clubs corresponding to three segmented independent local markets. The first convergence club consists of four and five provinces, respectively. The second convergence club is made of four and three provinces, respectively, while the third convergence club comprises only one province.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201322.

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Length: 18 pages
Date of creation: May 2013
Date of revision:
Handle: RePEc:pre:wpaper:201322

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Keywords: House prices; law of one price; panel; convergence;

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References

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  1. Mark J. Holmes & Theodore Panagiotidis & Jesus Otero, 2011. "Investigating Regional House Price Convergence in the United States: Evidence from a pair-wise approach," Discussion Paper Series 2011_12, Department of Economics, University of Macedonia, revised Jun 2011.
  2. Steven Cook, 2005. "Detecting long-run relationships in regional house prices in the UK," International Review of Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 19(1), pages 107-118.
  3. Holly, Sean & Pesaran, M. Hashem & Yamagata, Takashi, 2006. "A Spatio-Temporal Model of House Prices in the US," IZA Discussion Papers 2338, Institute for the Study of Labor (IZA).
  4. Peter C.B. Phillips & Donggyu Sul, 2007. "Transition Modeling and Econometric Convergence Tests," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1595, Cowles Foundation for Research in Economics, Yale University.
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  8. Philippe Burger & Lizelle janse Van rensburg, 2008. "Metropolitan House Prices In South Africa: Do They Converge?," South African Journal of Economics, Economic Society of South Africa, Economic Society of South Africa, vol. 76(2), pages 291-297, 06.
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  11. Rangan Gupta & Stephen Miller, 2012. "The Time-Series Properties of House Prices: A Case Study of the Southern California Market," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 44(3), pages 339-361, April.
  12. Smith, Lawrence B & Rosen, Kenneth T & Fallis, George, 1988. "Recent Developments in Economic Models of Housing Markets," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 26(1), pages 29-64, March.
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  14. McDonald, Ronald & Taylor, Mark P, 1993. "Regional House Prices in Britain: Long-Run Relationships and Short-Run Dynamics," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 40(1), pages 43-55, February.
  15. Ashworth, John & Parker, Simon C, 1997. "Modelling Regional House Prices in the UK," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 44(3), pages 225-46, August.
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  17. S. Cook & C. Thomas, 2003. "An alternative approach to examining the ripple effect in UK house prices," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(13), pages 849-851.
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