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A pair-wise approach to testing for output and growth convergence

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  • Hashem Pesaran, M.

Abstract

This paper proposes a pair-wise approach to testing for output convergence that considers all N(N-1)/2 possible pairs of log per capita output gaps across N economies. A general probabilistic definition of output convergence is also proposed. The approach is compatible with individual output series having unit roots, does not involve the choice of a reference country in computation of output gaps, and can be applied when N is large relative to T. The test is applied to output series in the Penn World Tables (1950-2000), and to Maddison's historical series (1870-2000). Overall, the results do not support output convergence and suggest that the findings of convergence clubs in the literature might be spurious. However, significant evidence of growth convergence is found. Non-convergence of log per capita outputs combined with growth convergence suggests that there are important country-specific factors that render output gaps highly persistent.
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Suggested Citation

  • Hashem Pesaran, M., 2007. "A pair-wise approach to testing for output and growth convergence," Journal of Econometrics, Elsevier, vol. 138(1), pages 312-355, May.
    • Handle: RePEc:eee:econom:v:138:y:2007:i:1:p:312-355
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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