Real β-Convergence of Transition Countries

Abstract

The aim of the paper is to analyze whether there is and, possibly, how strong the gross domestic product (GDP) β-convergence is in a group that includes most postcommunist countries, which, we believe, are a relatively homogeneous group compared to all countries. We use country-level panel data from the 1960-2009 period. In order to verify the β-convergence hypothesis, we use the Bayesian averaging of classical estimates (BACE) approach proposed by Sala-i-Martin et al. (2004). We estimate a convergence model without imposing an a priori assumption regarding the exact set of growth factors used as control variables in the regression. We use twenty potential growth factors (and an initial GDP level as an additional factor) and additional dummy variables (for Central and Eastern European and Commonwealth of Independent States countries) to further reduce the heterogeneity of the considered population. Our research allows us to robustly confirm the existence of β-convergence at a rate of 1.5 percent to 2 percent per annum. Using the BACE approach, we also identify the most relevant growth factors to be included in the β-convergence model. Our results are not controversial but in some respects differ from those present in the mainstream literature.