Note on the Interpretation of Convergence Speed in the Dynamic Panel Model
Studies using the dynamic panel regression approach have found the speed of income convergence among the world and regional economies to be high. For example, Lee et al. (1997, 1998) report the income convergence speed to be 30% per annum. This note argues that their estimates may 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%.
|Date of creation:||Jan 2011|
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- Phillips, Peter & Sul, Donggyu, 2002.
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194, Department of Economics, The University of Auckland.
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3120, National Bureau of Economic Research, Inc.
- Kevin Lee & M. Hashem Pesaran & Ron Smith, 1998. "Growth Empirics: A Panel Data Approach—A Comment," The Quarterly Journal of Economics, Oxford University Press, vol. 113(1), pages 319-323.
- Nazrul Islam, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1127-1170.
- Masahiko Shibamoto & Yoshiro Tsutsui & Chisako Yamane, 2009.
"Understanding Regional Growth Dynamics in JAPAN: Panel Cointegration Approach Utilizing The PANIC Method,"
Discussion Paper Series
243, Research Institute for Economics & Business Administration, Kobe University, revised Mar 2016.
- Shibamoto, Masahiko & Tsutsui, Yoshiro & Yamane, Chisako, 2016. "Understanding regional growth dynamics in Japan: Panel co-integration approach utilizing the PANIC method," Journal of the Japanese and International Economies, Elsevier, vol. 40(C), pages 17-30.
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