Economic convergence among the world’s top-income economies

Abstract

As the world leading economies are changing, the paper studies the scarcely analyzed economies identified as the world’s top-income economies based on the World Bank classification, over the period 1980–2016, instead of the frequently used, but not uniformly defined and more importantly outdated, “developed” countries distinction, and shows that a new group of economies displays convergence. The analysis is performed from three different angles that act in a complementary way, namely, the beta-convergence approach with the ability to detect a deterministic trend and user defined clubs, the log(t) approach that can detect both deterministic and stochastic trends with automatically generated clubs, and finally the pairwise approach that seeks stochastic trends with user defined potential clubs. All methods indicate that the group of the world top-income economies are participating in an ongoing convergence process, though the financial crisis might have disturbed it. The convergence evidence tends to grow weaker when the assumption of the deterministic underlying trend is enriched with a stochastic trend and finally abandoned.