A Pair-Wise Approach to Testing for Output and Growth Convergence

By M. Hashem. Social Science Research Network, 2007

454 citations recorded by the source corpus.

This paper proposes a pair-wise approach to testing for output convergence that considers all N(N-1)/2 possible pairs of log per capita output gaps across N economies. A general probabilistic definition of output convergence is also proposed, which suggests that all such output gap pairs must be stationary with a constant mean. The approach is compatible with individual output series having unit roots, does not involve the choice of a reference country in computation of output gaps, and can be applied when N is large relative to T (the time dimension of the panel). The proposed test is applied to output series in the Penn World Tables over 1950-2000, as well as to Maddion’s historical series over 1870-2000. Overall, the results do not support output convergence, and suggest that the findings of convergence clubs in the literature might be spurious. However, significant evidence of growth convergence is found, a result which is reasonably robust to the choice of the sample period and country groupings. Non-convergence of log per capita outputs combined with growth convergence suggests that while common technological progress seems to have been diffusing reasonably widely across economies, there are nevertheless important countryspecific factors (for example, wars, famines, revolutions, regime and institutional changes) that render output gaps highly persistent, such that we can not be sure that the probability for the outputs gaps to lie within a fixed range will be non-zero.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/aeee434bcc7715445b311e491edadb0a759e788a

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In Economics and Econometrics

Citations in the corpus

International Output Convergence, Breaks, and Asymmetric Adjustment (2011, background): “As discussed by Pesaran (2007), a zero mean would imply that two economies are identical in every respect, including savings rates, population growths and initial endowments. For this reason, a less stringent version of output convergence in time-series can be defined as deterministic convergence. T”
On the interpretation of panel unit root tests (2012, methodology): “However, as demonstrated in Pesaran and Smith (1995) neglected heterogeneity (even if purely random) can lead to spurious results in dynamic panels.”
A simple panel unit root test in the presence of cross-section dependence (2007, unknown): “These so-called ‘second generation’ panel unit root tests are reviewed in Breitung and Pesaran (2007) and Choi (2006).”
On the non-convergence of energy intensities: Evidence from a pair-wise econometric approach (2010, unknown): “Our methodology is drawn from Pesaran (2007) .”
Model-Based Clustering of Non-Gaussian Panel Data Based on Skew-t Distributions (2010, methodology): “Pesaran (2007), using data from the Penn World Tables, found evidence against convergence in levels but in favor of convergence in growth rates.”