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Note on the Interpretation of Convergence Speed in the Dynamic Panel Model

  • Masahiko Shibamoto

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Yoshiro Tsutsui

    (Graduate School of Economics, Osaka University, Japan)

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%.

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Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2011-04.

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Length: 8 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:kob:dpaper:dp2011-04
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  1. Lee, Kevin & Pesaran, M Hashem & Smith, Ron, 1997. "Growth and Convergence in Multi-country Empirical Stochastic Solow Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(4), pages 357-92, July-Aug..
  2. Peter C.B.Phillips & Donggyu Sul, 2002. "Dynamic Panel Estimation and Homogeneity Testing Under Cross Section Dependence," Cowles Foundation Discussion Papers 1362, Cowles Foundation for Research in Economics, Yale University.
  3. repec:tpr:qjecon:v:110:y:1995:i:4:p:1127-70 is not listed on IDEAS
  4. 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 Jan 2011.
  5. Shioji, Etsuro, 2001. " Public Capital and Economic Growth: A Convergence Approach," Journal of Economic Growth, Springer, vol. 6(3), pages 205-27, September.
  6. Kevin Lee & M. Hashem Pesaran & Ron Smith, . "Growth and Convergence in a Multi-County empirical Stochastic Solow Model," Discussion Papers in Economics 96/14, Department of Economics, University of Leicester.
  7. repec:tpr:qjecon:v:113:y:1998:i:1:p:319-323 is not listed on IDEAS
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