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Estimates of Technology and Convergence: Simulation Results

  • Graeme Wells

    (University of Tasmania)

  • Thanasis Stengos

    (Department of Economics and Finance, University of Guelph, Guelph, Ontario, Canada)

Using a Solow-Swan model with a stochastic saving rate and stochastic productivity we analyse the distributions of parameter estimates that emerge under various choices of technology, and of the dimension of the panel on which cross-section regressions are based. There are distinct asymmetries that characterise these distributions. These asymmetries become more pronounced when the effects of a near-unit root in the productivity shock become magnified over a longer time horizon and when the underlying production function is not Cobb-Douglas. Consequently, relying on traditional econometric transformations of these parameter estimates based on symmetric distributions, such as t ratios, will be quite misleading if one tries to assess technology parameters and ß -convergence.

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Article provided by Cyprus Economic Society and University of Cyprus in its journal Ekonomia.

Volume (Year): 13-14 (2010-2011)
Issue (Month): 2-1 (Winter-Summer)
Pages: 97-108

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Handle: RePEc:ekn:ekonom:v:13-14:y:2010-2011:i:2-1:p:97-108
Contact details of provider: Web page: http://www.ekonomia.ucy.ac.cy/

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  1. Binder, M. & Pesaran, M.H., 1996. "Stochastic Growth," Cambridge Working Papers in Economics 9615, Faculty of Economics, University of Cambridge.
  2. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June.
  3. Binder, Michael & Pesaran, M Hashem, 1999. " Stochastic Growth Models and Their Econometric Implications," Journal of Economic Growth, Springer, vol. 4(2), pages 139-83, June.
  4. Merton, Robert C., 1973. "An asymptotic theory of growth under uncertainty," Working papers 673-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Cellini, Roberto, 1997. "Implications of Solow's Growth Model in the Presence of a Stochastic Steady State," Journal of Macroeconomics, Elsevier, vol. 19(1), pages 135-153, January.
  6. Mirman, Leonard J, 1972. "On the Existence of Steady State Measures for One Sector Growth Models with Uncertain Technology," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(2), pages 271-86, June.
  7. Mirman, Leonard J., 1973. "The steady state behavior of a class of one sector growth models with uncertain technology," Journal of Economic Theory, Elsevier, vol. 6(3), pages 219-242, June.
  8. Bianchi, Marco, 1997. "Testing for Convergence: Evidence from Non-parametric Multimodality Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(4), pages 393-409, July-Aug..
  9. Buchinsky, Moshe, 1994. "Changes in the U.S. Wage Structure 1963-1987: Application of Quantile Regression," Econometrica, Econometric Society, vol. 62(2), pages 405-58, March.
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