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Measuring Convergence using Dynamic Equilibrium Models: Evidence from Chinese Provinces

Author

Listed:
  • Lei Pan

    () (Wageningen University)

  • Olaf Posch

    () (Aarhus University and CREATES)

  • Michel van der Wel

    () (Erasmus University Rotterdam and CREATES)

Abstract

We propose a model to study economic convergence in the tradition of neoclassical growth theory. We employ a novel stochastic set-up of the Solow (1956) model with shocks to both capital and labor. Our novel approach identifies the speed of convergence directly from estimating the parameters which determine equilibrium dynamics. The inference on the structural parameters is done using a maximum-likelihood approach. We estimate our model using growth and population data for China’s provinces from 1978 to 2010. We report heterogeneity in the speed of convergence both across provinces and time. The Eastern provinces show a higher tendency of convergence, while there is no evidence of convergence for the Central and Western provinces. We find empirical evidence that the speed of convergence decreases over time for most provinces.

Suggested Citation

  • Lei Pan & Olaf Posch & Michel van der Wel, 2012. "Measuring Convergence using Dynamic Equilibrium Models: Evidence from Chinese Provinces," CREATES Research Papers 2012-26, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:create:2012-26
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    File URL: ftp://ftp.econ.au.dk/creates/rp/12/rp12_26.pdf
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    More about this item

    Keywords

    Economic convergence; Dynamic stochastic equilibrium models; Solow model; Structural estimation;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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