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Convergence of Income Among Provinces in Canada – An Application of GMM Estimation




This paper tests for unconditional and conditional income convergence among provinces in Canada during the period 1981-2001. We apply the first-differenced GMM estimation technique to the dynamic Solow growth model and compare the results with the other panel data approaches such as fixed and random effects. The method used in this paper accounts for not only province-specific initial technology levels but also for the heterogeneity of the technological progress rate between the ‘richer’ and ‘not so richer’ provinces of Canada. One of the findings of the paper is that the Canadian provinces do not share a common technology progress rate and a homogeneous production function. The findings of the study suggest a convergence rate of around 6% to 6.5% p.a. whereas the previous studies using OLS and other techniques reported a convergence rate of around 1.05 % for per capita GDP and 2.89% p.a. for personal disposable income among Canadian provinces.

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  • Mukesh Ralhan & Ajit Dayanandan, 2005. "Convergence of Income Among Provinces in Canada – An Application of GMM Estimation," Econometrics Working Papers 0502, Department of Economics, University of Victoria.
  • Handle: RePEc:vic:vicewp:0502 Note: ISSN 1485-6441

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    References listed on IDEAS

    1. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-380, December.
    2. Baumol, William J & Wolff, Edward N, 1988. "Productivity Growth, Convergence, and Welfare: Reply," American Economic Review, American Economic Association, vol. 78(5), pages 1155-1159, December.
    3. Barro, R.J. & Sala-i-Martin, X., 1991. "Regional Growth and Migration: a Japan - U.S. Comparaison," Papers 650, Yale - Economic Growth Center.
    4. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    5. Wakerly, Elizabeth C., 2002. "Disaggregate dynamics and economic growth in Canada," Economic Modelling, Elsevier, vol. 19(2), pages 197-219, March.
    6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    7. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    8. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    9. 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.
    10. Baumol, William J, 1986. "Productivity Growth, Convergence, and Welfare: What the Long-run Data Show," American Economic Review, American Economic Association, vol. 76(5), pages 1072-1085, December.
    11. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    12. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-251, April.
    13. Nazrul Islam, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1127-1170.
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    Cited by:

    1. Evan Capeluck, 2014. "Convergence Across Provincial Economies in Canada: Trends, Drivers, and Implications," CSLS Research Reports 2014-03, Centre for the Study of Living Standards.
    2. Simplice A Asongu, 2013. "On the Obituary of Scientific Knowledge Monopoly," Economics Bulletin, AccessEcon, vol. 33(4), pages 2718-2731.
    3. Kathavate, Jay, 2013. "Direct & Indirect Effects of Aid Volatility on Growth: Do Stronger Institutions Play a Role?," MPRA Paper 45187, University Library of Munich, Germany.
    4. Monica Raileanu Szeles & Rodrigo Mendieta Muñoz, 2016. "Analyzing the Regional Economic Convergence in Ecuador. Insights from Parametric and Nonparametric Models," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 43-65, June.

    More about this item


    Provincial convergence; Canada; Panel data; GMM;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • H4 - Public Economics - - Publicly Provided Goods
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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