Fractional Output Convergence, with an Application to Nine Developed Countries
We argue that cross-country convergence of output per capita should be examined in a fractional-integration time-series context and we propose a new empirical strategy to test it, which is the first one that discriminates between fractional long-run convergence and fractional catching-up. The starting point of the paper is: since there are reasons to believe that aggregate output is fractionally integrated, the usual testing strategy based on unit-root or traditional I(1)-I(0) cointegration techniques is too restrictive and may lead to spurious results. We then propose a new classification of output convergence processes which is valid when outputs are fractionally integrated and which nests the usual definitions built for an I(1)-versus-I(0) world. The new testing strategy, which can identify the precise type of convergence, is based on the combined use of new inferential techniques developed in the fractional integration literature. The advantage of these new techniques is that of being robust both to the presence of a trend and to a memory parameter d above 0.5. We explain in detail the importance of this advantage for testing convergence. This strategy applied on a group of developed countries (G-7, Australia and New Zealand) shows that these countries converged in the last century; it also determines the type of convergence for each one. The main result is that per-capita-output differentials are typically mean-reverting fractionally I(d), with d significantly above 0 but below 1. This contrasts with the results of divergence obtained with six unit-root tests and by other authors with I(1)-I(0) (co)integration techniques. The paper therefore contributes to solve the puzzling negative or inconclusive results about convergence usually obtained with I(1)-I(0) tests; our results also prove that the proposed widening of the statistical definition of output convergence is necessary and that convergence does take place but is slower than traditionally expected
|Date of creation:||11 Aug 2004|
|Date of revision:|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barro, R.J. & Sala-I-Martin, X., 1991.
"Convergence Across States and Regions,"
629, Yale - Economic Growth Center.
- Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April.
- Robert J. Barro & Xavier Sala-i-Martin, 1991. "Convergence across States and Regions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 107-182.
- Strazicich, Mark C. & Lee, Junsoo & Day, Edward, 2004. "Are incomes converging among OECD countries? Time series evidence with two structural breaks," Journal of Macroeconomics, Elsevier, vol. 26(1), pages 131-145, March.
- Lee, T.H. & Gonzalo, J., 1995.
"On the Robustness of Cointegration Tests when Series Are Fractionally Integrated,"
The A. Gary Anderson Graduate School of Management
95-11, The A. Gary Anderson Graduate School of Management. University of California Riverside.
- Jesus Gonzalo & Tae-Hwy Lee, 2000. "On the robustness of cointegration tests when series are fractionally intergrated," Journal of Applied Statistics, Taylor & Francis Journals, vol. 27(7), pages 821-827.
- Andrew B. Bernard & Steven N. Durlauf, 1994.
"Interpreting Tests of the Convergence Hypothesis,"
NBER Technical Working Papers
0159, National Bureau of Economic Research, Inc.
- Velasco, Carlos, 1999. "Non-stationary log-periodogram regression," Journal of Econometrics, Elsevier, vol. 91(2), pages 325-371, August.
- Diebold, Francis X. & Rudebusch, Glenn D., 1991.
"On the power of Dickey-Fuller tests against fractional alternatives,"
Elsevier, vol. 35(2), pages 155-160, February.
- Francis X. Diebold & Glenn D. Rudebusch, 1990. "On the power of Dickey-Fuller tests against fractional alternatives," Finance and Economics Discussion Series 119, Board of Governors of the Federal Reserve System (U.S.).
- Marmol, Francesc & Velasco, Carlos, 2002. "Trend stationarity versus long-range dependence in time series analysis," Journal of Econometrics, Elsevier, vol. 108(1), pages 25-42, May.
- Roberto Cellini & Antonello E. Scorcu, 2000. "Segmented stochastic convergence across the G-7 countries," Empirical Economics, Springer, vol. 25(3), pages 463-474.
- Michelacci, C. & Zaffaroni, P., 1998.
"(Fractional) Beta Convergence,"
9803, Centro de Estudios Monetarios Y Financieros-.
- Claudio Michelacci & Paolo Zaffaroni, 2000. "(Fractional) Beta Convergence," Temi di discussione (Economic working papers) 383, Bank of Italy, Economic Research and International Relations Area.
- Michelacci, C. & Zaffaroni, P., 2000. "(Fractional) Beta Convergence," Papers 383, Banca Italia - Servizio di Studi.
- Paul M Romer, 1999.
"Increasing Returns and Long-Run Growth,"
Levine's Working Paper Archive
2232, David K. Levine.
- Li, Qing & Papell, David, 1999. "Convergence of international output Time series evidence for 16 OECD countries," International Review of Economics & Finance, Elsevier, vol. 8(3), pages 267-280, September.
- Juncal Cunado & Luis A. Gil-Alana & Fernando Pérez de Gracia, 2006.
"Additional Empirical Evidence on Real Convergence: A Fractionally Integrated Approach,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer, vol. 142(1), pages 67-91, April.
- Juncal Cunado & Luis A. Gil-Alana & Fernando Pérez de Gracia, 2003. "Additional Empirical Evidence on Real Convergence: A Fractionally Integrated Approach," Faculty Working Papers 01/03, School of Economics and Business Administration, University of Navarra.
- Ooms, M. & Doornik, J.A., 1999. "Inference and Forecasting for Fractional Autoregressive Integrated Moving Average Models, with an application to US and UK inflation," Econometric Institute Research Papers EI 9947/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Evans, P, 1996.
"Using Panel Data to Evaluate Growth Theories,"
ISER Discussion Paper
0397, Institute of Social and Economic Research, Osaka University.
- Evans, Paul & Karras, Georgios, 1996. "Convergence revisited," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 249-265, April.
- Katsumi Shimotsu & Peter C.B. Phillips, 2000. "Modified Local Whittle Estimation of the Memory Parameter in the Nonstationary Case," Cowles Foundation Discussion Papers 1265, Cowles Foundation for Research in Economics, Yale University.
- Oxley, Les & Greasley, David, 1995. "A Time-Series Perspective on Convergence: Australia, UK and USA since 1870," The Economic Record, The Economic Society of Australia, vol. 71(214), pages 259-70, September.
- Quah, Danny, 1993.
" Galton's Fallacy and Tests of the Convergence Hypothesis,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 95(4), pages 427-43, December.
- Quah, Danny, 1993. "Galton's Fallacy and Tests of the Convergence Hypothesis," CEPR Discussion Papers 820, C.E.P.R. Discussion Papers.
- Loewy, Michael B. & Papell, David H., 1996. "Are U.S. regional incomes converging? Some further evidence," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 587-598, December.
- Paul Evans, 1997. "How Fast Do Economies Converge?," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 219-225, May.
When requesting a correction, please mention this item's handle: RePEc:ecm:ausm04:280. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.