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Income Thresholds And Growth Convergence: A Panel Data Approach

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  • TSUNG-WU HO

Abstract

This paper applies a dynamic panel model to explore whether the low-income countries 'catch up' with the rich ones by examining the threshold effects of per capita income on the convergence behavior of growth rates. Empirical evidence from 121 Penn World Table economies and 48 US states indicates that income levels have substantial impacts on the convergence behavior. First, convergence is insignificantly found in the lowest-income regimes, which is interpreted that these poor countries persist at their income levels, which cause possible income barriers-to-growth. That is, the poor countries may not be able to catch up with the rich ones easily, unless an income threshold is overcome. Second, convergence is significantly found beyond the lowest-income regime, implying that the low-income countries catch up with the rich. We conclude that when a certain income threshold is overcome, the poor countries catch up with the rich ones; hence a subsidiary income policy can be helpful. Copyright Blackwell Publishing Ltd and The University of Manchester, 2006.

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  • Tsung-Wu Ho, 2006. "Income Thresholds And Growth Convergence: A Panel Data Approach," Manchester School, University of Manchester, vol. 74(2), pages 170-189, March.
  • Handle: RePEc:bla:manchs:v:74:y:2006:i:2:p:170-189
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    Cited by:

    1. Yi-Chi Chen & Chang-Ching Lin, 2010. "Threshold Effects in Cigarette Addiction: An Application of the Threshold Model in Dynamic Panels," Economics Bulletin, AccessEcon, vol. 30(4), pages 3128-3142.
    2. Nicolino Trompieri Neto & Ivan Castelar & Fabrício Cameiro Linhares, 2008. "Convergência de Renda dos Estados Brasileiros: Uma Abordagem de Painel Dinâmico com Efeito Threshold," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807212130050, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Li, Kui-Wai & Zhou, Xianbo & Pan, Zhewen, 2016. "Cross-country output convergence and growth: Evidence from varying coefficient nonparametric method," Economic Modelling, Elsevier, vol. 55(C), pages 32-41.
    4. Miguel A. Juárez & Mark F. J. Steel, 2010. "Non‐gaussian dynamic bayesian modelling for panel data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(7), pages 1128-1154, November/.
    5. Yoseph Yilma Getachew & Keshab Bhattarai & Parantap Basu, 2012. "Capital adjustment cost and bias in income based dynamic panel models with fixed effects," Working Papers 2012_07, Durham University Business School.

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