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Twin Peaks or Three Components? - Analyzing the World\'s Cross-Country Distribution of Income

  • Hajo Holzmann

    (Institute of Stochastics, University of Karlsruhe / Germany)

  • Sebastian Vollmer

    ()

    (Ibero-America Institute, University of Goettingen / Germany)

  • Julian Weisbrod

    (Department of Economics, University of Goettingen / Germany)

In this paper we analyze the world´s cross-national distribution of income and its evolution from 1970 to 2003. We argue that modeling this distribution by a finite mixture and investigating its number of components has advantages over nonparametric inference concerning the number of modes. In particular, the number of components of the distribution does not depend on the scale chosen (original or logarithmic), whereas the number of modes does. Instead of so-called twin-peaks, we find that the distribution appears to have only two components in 1970-1975, but consists of three components from 1976 onwards, a low, average and high mean-income group, with group means diverging over time. Here we apply recently developed modified likelihood ratio tests for the number of components in a finite mixture. The intra distributional dynamics are investigated in detail using posterior probability estimates.

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File URL: http://www2.vwl.wiso.uni-goettingen.de/ibero/papers/DB162.pdf
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Paper provided by Ibero-America Institute for Economic Research in its series Ibero America Institute for Econ. Research (IAI) Discussion Papers with number 162.

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Length: 37 pages
Date of creation: 11 Sep 2007
Date of revision:
Handle: RePEc:got:iaidps:162
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  1. Sala-i-Martin, Xavier, 1995. "The Classical Approach to Convergence Analysis," CEPR Discussion Papers 1254, C.E.P.R. Discussion Papers.
  2. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  3. Maasoumi, Esfandiar & Racine, Jeff & Stengos, Thanasis, 2007. "Growth and convergence: A profile of distribution dynamics and mobility," Journal of Econometrics, Elsevier, vol. 136(2), pages 483-508, February.
  4. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  5. Hanfeng Chen & Jiahua Chen & John D. Kalbfleisch, 2004. "Testing for a finite mixture model with two components," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 66(1), pages 95-115.
  6. Roberto Zelli & Maria Grazia Pittau, 2006. "Empirical evidence of income dynamics across EU regions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(5), pages 605-628.
  7. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  8. Quah, Danny, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," CEPR Discussion Papers 1586, C.E.P.R. Discussion Papers.
  9. Hanfeng Chen & Jiahua Chen & John D. Kalbfleisch, 2001. "A modified likelihood ratio test for homogeneity in finite mixture models," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 63(1), pages 19-29.
  10. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  11. 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..
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