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Note on the interpretation of the convergence speed in the dynamic panel model

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  • Masahiko Shibamoto
  • Yoshiro Tsutsui

Abstract

Studies using dynamic panel regression approach have found a high speed of income convergence among the world and the regional economies. For example, Lee et al. (1997, 1998) report 30% per annum. This note argues that their estimates of the convergence speed can be seriously overstated. Using a factor model, we show that the coefficient of the lagged income in their specification may not be the long-run convergence speed, but the adjustment speed of the short-run deviation from the long-run equilibrium path. We give an example of an empirical analysis, where the short-run adjustment speed is about 40%.

Suggested Citation

  • Masahiko Shibamoto & Yoshiro Tsutsui, 2014. "Note on the interpretation of the convergence speed in the dynamic panel model," Applied Economics Letters, Taylor & Francis Journals, vol. 21(8), pages 533-535, May.
    • Handle: RePEc:taf:apeclt:v:21:y:2014:i:8:p:533-535
    DOI: 10.1080/13504851.2013.872754
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    Cited by:

    1. Alper Yılmaz, 2023. "Carbon emissions effect of trade openness and energy consumption in Sub-Saharan Africa," SN Business & Economics, Springer, vol. 3(2), pages 1-28, February.

    More about this item

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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