SPair-Wise Output Convergence in East Asia and the Pacific: An Application of Stochastic Unit Root Test
The objective of this paper is to examine time series cross-country output convergence in eleven counties of East Asia and the Pacific. Specifically, we modelled the cross-country output differences as a Stochastic Unit Root (STUR) processes a la Granger and Swanson (1997). Since, STUR commonly occur in economic theory as well as in everyday macroeconomic applications, therefore, modelling cross-country output differences as STUR is considered pertinent and superior in terms of performance and forecasting. Leybourne et al. (1997) test has been applied that has a null hypothesis of exact unit roots against an alternative of STUR. The presence of a constant unit root in output differences implies divergence while the presence of a stochastic unit root implies convergence. Using the output-differences between Japan and the 10 other countries, we find output convergence only for the Japan-New Zealand and Japan-Taiwan country-pairs. Alternatively, using the output-differences between Australia (reference country) and the other 10 sampled countries; we fail to find any evidence of convergence.
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