Income Dispersion and Sigma Convergence in South-South-Agreement Areas

Abstract

Some of the new trade and economic geography theory findings are quite critical concerning the so called South-South-agreements. Main criticisms are that they would lead to increasing income disparity by similar production structures, agglomeration and trade diversion at the expense of the poorest regions, etc. This study is intended to contribute to this discussion by means of an empirical analysis of most of the important South-South regional integration areas. Sperlich and Sperlich (2011) have only proven that they promote both growth and beta-convergence. Here now we examine the income development and calculate the sigma convergence of each area to check for income convergence between member countries of South-South agreements. The results show that there may be sigma convergence in some areas, but the income dispersion is not decreasing in general. However, even when we correct for possible business cycle effects in a rather generous way (i.e. assuming a quite smooth trend), the sigma path is hardly ever monotone. These results are compared to other papers, especially to those on betaconvergence for the same integration areas.