Abstract
In this paper, we examine the convergence hypothesis using a long memory framework that allows for structural breaks and does not rely on a benchmark country. We find that even though the long memory framework of analysis is much richer than the simple I(1)/I(0) alternative, a simple absolute divergence and rapid convergence dichotomy produced by the latter is sufficient to capture the behavior of the gaps in per capita GDP levels and growth rates results respectively. This is in contrast to the findings of Dufrénot, Mignon, and Naccache [The Slow Convergence of Per Capita Income between the Developing Countries: Growth Resistance and Sometimes Growth Tragedy. Discussion paper, University of Nottingham (2009)], who found strong evidence of long memory for output gaps. The speed of convergence as captured by the estimated long memory parameter d, is explained by differences in physical and human capital as well as fiscal discipline characteristics of economic policies pursued by different countries.
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