Conditional Convergence Hypothesis Research Articles

What Have We Not Learned from the Convergence Debate?

We argue that the alternative hypotheses about cross-country convergence dynamics, namely the Conditional Convergence Hypothesis, Absolute Convergence Hypothesis, and Club Convergence hypothesis, build upon different modelling choices and answer different empirical questions. Hence, results favoring one hypothesis are not necessarily evidence against the other hypotheses. We apply several modelling approaches to a sample of world economies to support our argument, and present empirical evidence that yields controversial conclusions if the hypotheses about convergence are taken as competing. However, the controversy disappears as we note that there are neither theoretical nor empirical reasons to take evidence in favor of the Absolute Convergence Hypothesis as necessarily being against the Club Convergence Hypothesis, and vice versa. We present results for the world economies where the two processes co-exist. We conclude by arguing that when analysis is conducted at the regional level, the two processes are more likely to co-exist because regions share the same institutions, culture, natural resources, and other fundamental causes of growth. Consequently, a test for convergence that studies whether clusters converge or diverge once eventually emerged in the distribution of incomes is still needed. Finally, we argue that to study convergence dynamics, it is necessary to model relationships between economies.

Real Convergence in the European Union. Bridging the Gap between the New and Old Member States

One of the fundamental pillars of the European Union aims at the convergence of economic performances among its Member States. This objective has become increasingly challenging with the advancement of the integration process from the customs union to the economic and monetary union, from the six founding Members to twenty-seven European states. The aim of this paper is to study real convergence in the European Union between 2000 and 2019 and conducting also a comparative analysis between the New and the Old Members. The methodological tools imply absolute and conditional β- and σ-convergence. By using cross-sectional regressions, we have found evidence in favour of the absolute β-convergence hypothesis, as the initially poorer Members experienced higher GDP per capita growth rates than the developed economies. The average catching-up speed in the European Union was 2.5%, while the Central and Eastern Members experienced a higher convergence rate, which reached 3.6%. Moreover, by applying panel regressions, we have found evidence supporting the conditional convergence hypothesis, the study emphasising the role of macroeconomic, social, and governance-related variables in promoting economic growth. Our research suggests that investment and trade had a major role in enhancing economic growth both at the aggregate and subgroup level. Finally, the paper illustrates that β-convergence was accompanied by a reduction of disparities within the European Union. However, the global financial crisis hampered the convergence process among the Old Members. The paper suggests that although the Central and Eastern European countries made important progress in terms of catching-up, convergence of economic performance in the European Union has not been reached so far. By contrast, the modest growth rates and the exacerbation of income differentials between the Old Members might call into question the perspective to achieve this objective in the short term.

Convergence theory and conditional income convergence among sub‐Saharan African countries

AbstractThis article examines the hypothesis of conditional convergence in income per person for sub‐Saharan African (SSA) countries over the most recent twenty‐five‐year period, 1990–2014, including examining the effects of new conditioning variables. This study uses new data from the Penn‐World Table 9.0 on per capita income and income growth which recently became available in purchasing‐power‐parity (PPP$) 2011 dollars. This is the first article to use this data to research convergence of per capita income in SSA. The study also identifies new conditioning variables and includes them in the econometric model of growth. The main results are for the largest 35 SSA countries, and they include: Average per capita income in 2011 PPP$ grew at 1.6% over the period of 1990–2014; and conditional convergence is occurring, that is, countries lagging behind in 1990 grew faster. Further, instrumenting the starting year value of per capita income increases the rate of convergence by 50%. The strongest finding throughout was for share of labor in agriculture, indicating that countries with a larger share of agriculture in 1990 grew slower. It also finds that countries located on the ocean and with a higher literacy rate tend to grow faster, while countries with higher life expectancy grew slower. External support for new agricultural technology or increased nutrition and food availability that increases agricultural productivity would reduce the share of labor in agriculture and increase future growth performance.

The long-term causal effect of U.S. bombing missions on economic development: Evidence from the Ho Chi Minh Trail and Xieng Khouang Province in Lao P.D.R

This study investigates the long-term causal effects of U.S. bombing missions during the Vietnam War on later economic development in Laos. Following an instrumental variables approach, we use the distance between the centroid of village-level administrative boundaries and heavily bombed targets, namely, the Ho Chi Minh Trail in southern Laos and Xieng Khouang Province in northern Laos, as an instrument for the intensity of U.S. bombing missions. We use three datasets of mean nighttime light intensity (1992, 2005, and 2013) and two datasets of population density (1990 and 2005) as outcome variables. The estimation results show no robust long-term effects of U.S. bombing missions on economic development in southern Laos but show negative effects in northern Laos, even 40 years after the war. We also found that the results do not necessarily support the conditional convergence hypothesis within a given country, although this result could be unique to Laos.

Evaluating the conditional convergence hypothesis in the post-1989 globalization period

ABSTRACT This paper finds that conditional convergence in per capita incomes, as a robust empirical regularity across countries, is absent in the post-1989 globalization era. The results show that conditional convergence is subject to some initial, returns-adjusted level of education, implying that it has become more challenging for developing countries to industrialize via technology catch-up from abroad. The lack of conditional convergence, together with the increasing importance of education, complements another strand of literature that provides evidence of growth-reducing structural change, a growing technology gap due to the skill-intensive nature of manufacturing, and their link to the premature deindustrialization phenomenon observed in many developing countries since 1990. To draw an explicit link between the lack of conditional convergence in the post-1989 period and the literature on premature deindustrialization, the analysis augments a Barro-type regression with the employment shares of manufacturing, agriculture and services. The results show that raising the employment share of manufacturing relative to agriculture and, especially, services, is the most effective way to induce conditional convergence and generate faster growth in per capita income. One implication of the lack of conditional convergence is that the growth accelerations observed in many developing economies since the late-1990s may not be sustainable.

Technology diffusion, absorptive capacity, and income convergence for Asian developing countries: a dynamic spatial panel approach

In this paper, we analyze convergence in relative income using a technology diffusion model allowing for spatial interdependence among 11 Asian countries from 1970 to 2014. We compute impulse responses (absolute or conditional convergence) to stochastic productivity shock through sensitivity analysis using a two-country model. We then conduct spatial panel model estimation, decomposing marginal effects into direct (own country) and indirect (spillover) effects for a multicountry empirical model. Technology stock is measured according to the total factor productivity of the Asian country relative to that of the leader country, the USA. Through sensitivity analysis, we find that the results support both the absolute and conditional convergence hypotheses in the technology diffusion model. The dynamic spatial Durbin panel regression results with the Schumpeterian technological diffusion model and the extended neoclassical growth model support the conditional convergence hypothesis among Asian countries since the total effect on the lagged relative income is significant and negative. The total effects of human capital investment rate, total factor productivity, and trade on relative income growth are positive and significant, and most technology shock is transferred by absorption capacity in combination with trade in Asian countries.

Convergence in CO2 emissions: A spatial economic analysis with cross-country interactions

This research analyzes the evolution of CO2 emissions per capita in a sample of 141 countries during the period 1970–2014. The study develops a spatially augmented Green Solow model by taking into consideration technological externalities and interdependence in the process of production, which ultimately implies that CO2 emissions in an economy are affected by the economic characteristics in neighboring countries. The empirical model predicts convergence in CO2 emissions among countries which is examined by means of modern dynamic spatial panel econometric techniques. The multimodal distribution of the CO2 emissions is consistent with the existence of three spatial clubs. The space-time dynamics of the three clubs are analyzed by means of the Local Directional Moran Scatterplot and spatial panel model with heterogeneous parameters. Our analysis reveals the hypothesis of spatial convergence clubs is more consistent with the data than the hypothesis of conditional convergence.

Conditional convergence in per capita carbon emissions since 1900

This study examines conditional convergence in relative per capita carbon dioxide emissions by using the recently developed Residual Augmented Least Squares-Lagrange Multiplier (RALS-LM) unit root test procedure that allows for endogenously determined structural breaks. Utilising a sample of 44 developed and developing countries dating back to the beginning of the 20th century, the null hypothesis of a unit root in relative per capita carbon dioxide emissions is soundly rejected, lending support to the conditional convergence hypothesis. Also, an examination of the pre and post-World War II suggests that convergence in relative per capita carbon dioxide emissions is more pronounced over the post-World War II period as opposed to the pre-World War II period.

Re-examination of convergence hypothesis among Indian states in panel stationarity testing framework with structural breaks

ABSTRACTThis article examines the conditional income convergence hypothesis for 17 major states in India for the period of 1960–2012. Univariate stationarity tests without structural breaks provide evidence against the convergence hypothesis. However, when two or more structural breaks are applied in per capita income series, the incomes of around 11–13 states are found to stochastically converge to the national average. This finding supports the convergence hypothesis for the panel as a whole after accounting for two data features, cross-sectional dependence and structural breaks in incomes, using a unified panel stationarity testing framework.

Spatial analysis of the nexus between tourism–human capital–economic growth

This article demonstrates empirical evidence on the spatial data analysis of the nexus between tourism and economic growth. South Europe’s regions during the time period 2000–2014 have been the case study of this work. The Generalized method of moments (GMM) approach used in this study enables testing the existence of determinants of regional economic status, while accounting for factors such as spatial interdependence. The empirical results reveal the existence of the significant conditional convergence hypothesis that is associated with the endogenous growth theory. Also, findings show that tourism and human capital supply seem to positively influence regional income.

Growth convergence and local steady states across Chinese prefectures

ABSTRACTThis article investigates how economic growth paths diverge across Chinese prefectural cities. Based on the conditional convergence hypothesis, the analysis includes inward foreign direct investments and patent applications to the European Patent Office as additional proxies of steady-state income levels and allows the convergence parameter to vary across groups. The results show that within-convergence rates are different across groups, but growth drivers positively affect both intraregional and interregional catching up.

Does the location and the institutional background matter in convergence modelling of the EU regions?

The paper focuses on the testing of regional income convergence of NUTS2 EU regions during the 2000–2011 period with the emphasis on conditional income convergence using both non-spatial and spatial approaches. In order to examine the fact that the per capita GDP growth rate in one region may be associated with the growth rate in neighbouring regions, our empirical part begins with the Exploratory Spatial Data Analysis (ESDA). This preliminary analysis based on the ESDA tools has suggested the appropriateness of the spatial aspect in income regional convergence modelling. Following these results, we proceed with the estimation of the beta-convergence models for purpose of verifying various absolute and conditional convergence hypotheses. The estimation of the income convergence models confirmed that the spatial dependence among regions does matter. We have also employed the dummy variable corresponding to the former political orientation of the regions in order to test the conditional convergence hypothesis assuming that it controls for different country specific factors. The incorporation of the dummy variable enabled us to assess the speed of convergence and the half-life time separately for two groups of regions under the consideration (post-communist or not). Almost all hypotheses of the analysed convergence models were confirmed. The inclusion of spatial effects to the models always led to worsening of the convergence characteristics. Overall, the results of our analysis imply that convergence process is not determined only by a region’s initial income and other specific factors but also essentially by its neighbourhood region’s growth performance.

Convergence and Divergence among Countries

This paper focuses on the study of the conditional convergence hypothesis among African countries that belonging to the West African Economic and Monetary Union (WAEMU), More precisely, this paper treats even the effect of convergence, stability and growth pact on the convergence dynamics, by considering control variables comprising: the share of investment in gross domestic product the enrollment and the opening ratio, the study showed that these variables contribute to the revival of economic growth in the region. We use two estimation technique: within and system generalized method of moment, for the period 2000-2012. Similarly we give special attention to two streams of conflicting thoughts. The first is based on the positive impact generated by the opening on convergence of income among nations, while the second is almost contradictory to the one defined above, this current is called divergence or inequality between countries.

GROWTH DYNAMICS AND CONDITIONAL CONVERGENCE AMONG CHINESE PROVINCES: A PANEL DATA INVESTIGATION USING SYSTEM GMM ESTIMATOR

The paper aims at contributing to the debate on conditional convergence across Chinese provinces by using the most recent techniques of dynamics panel data models. The analysis covers twenty-nine Chinese provinces from 1995 to 2009 and is based on the estimation of growth equations using system GMM estimator. Three main results can be drawn from our empirical investigations. First, investment in physical capital and education have played an important role in promoting economic growth. Second, the hypothesis of conditional convergence is verified over the period 1995-2009. Third, Chinese provinces have converged more quickly over their steady-state level during the period 2004-2009. Finally, we suggest that the acceleration of the speed of conditional convergence in the recent years may be a consequence of the implementation of regional development programs during the 2000s.

Disentangling the heterogeneous income elasticity and dynamics of health expenditure

In this article, we empirically study the impact of per capita income on health-care expenditure and its dynamics over time in a sample of 14 OECD countries for the period 1971 to 2009. A simple model, built upon one developed by Newhouse (1977), suggests that health care is a necessity in the short run but it cannot be rejected to be a luxury good in the long run. Our findings provide strong empirical evidence that a year’s health expenditure is conditioned by the previous one. Interestingly, our results reveal increasing income inelasticity over time along with huge heterogeneity across countries. Finally, this article supports the hypothesis of conditional convergence in health-care spending among countries. In designing policies which facilitate the sustainability of national health systems, we emphasize that ceteris paribus the greater the participation of public health, the lower the growth rate of health spending. High share of children and elderly over working age population opposite influences. We also provide evidence that technological progress could reduce the long-run income elasticity for health care, which in turn threaten the sustainability of health-care systems.

A Romerian contribution to the empirics of economic growth

Mankiw, Romer, and Weil (1992) made the Solovian set up widely used to test the determinants of economic growth and the speed of convergence. In accordance with the nature of the Solow framework, almost all empirical growth studies considered technological progress constant and identical across countries and over time, and hence underemphasized its role. In this study, in order to overcome this weakness, we propose that the Mankiw, Romer, and Weil (1992) set-up should be replaced by the Solovianized Romer (1990) framework, thus allowing the role of technology to be considered in the empirical analysis. In particular, within this framework, the growth rate of technology varies across economies and over time. We estimate the convergence equation derived from Solovianized Romer model for 31 OECD countries for the period 1980–2008 by applying the system GMM approach. The empirical findings of the model support the conditional convergence hypothesis, but reveal a lower convergence rate than that predicted by the existing literature. As a policy implication, we argue that, investment in R&D and human capital are important determinants of convergence, and in cases where economies are unable to allocate sufficient resources to R&D, policy makers should ease the diffusion of technology (e.g., via FDI or trade) in order to retain a high convergence rate.

LOL selection in high dimension

A selection procedure with no optimization step called LOLA, for Learning Out of Leaders with Adaptation is proposed. LOLA is an auto-driven algorithm with two thresholding steps. The consistency of the LOL procedure (the non adaptive version of LOLA) is proved under sparsity conditions and simulations are conducted to illustrate the practical good performances of LOLA. The behavior of the algorithm is studied when instrumental variables are artificially added without a priori significant connection to the model. Finally, the problem of empirically verifying the conditional convergence hypothesis used in economics concerning the growth rate is studied. To avoid unnecessary discussion about the choice and the pertinence of instrumental variables, the model is embedded in a very high dimensional setting. Using the LOLA algorithm, a solution for modeling the link between the growth rate and the initial level of the gross domestic product is provided and the convergence hypothesis is empirically proved.

Teste da convergência do PIB per capita da agropecuária no brasil entre 1980 e 2004

Este estudo testa as hipóteses das convergências absoluta, condicional e sigma, para o PIB agropecuário per capita (PIBAGpc). Nas simulações com a convergência-β absoluta, os parâmetros foram significativos (α =1%) e sinais desses estão em consonância com a teoria econômica. Esses resultados sustentam a convergência do PIBAGpc de cada UF para o estado estacionário. A convergência-β condicional revelou a significância (α =1%) dos parâmetros estimados e os seus sinais coerentes teoricamente. Portanto, PIBAGpc de cada UF converge para seu próprio estado estacionário, quando considerado o desempenho ativo do capital humano. Contudo, os resultados da convergência-σ não sustentaram a hipótese de convergência do PIBAGpc brasileiro.

International output convergence: evidence from an autocorrelation function approach

AbstractThis paper uses an autocorrelation function (ACF) approach to develop a new testing procedure for international output convergence. We define convergence in terms of sample ACFs of detrended output per capita, and construct an inference set‐up based on resampling and subsampling techniques for dependent data. Using per capita GDP for 15 OECD countries observed over a century, we find that the hypothesis of conditional convergence is unsupported; that, the USA apart, the linearized neoclassical growth model fails to replicate the transitional dynamics of OECD economies; and that these economies do not behave like a club. Copyright © 2008 John Wiley & Sons, Ltd.

Trade, catching‐up and divergence

This paper investigates the link between trade and convergence in per capita income by applying a threshold methodology to standard growth regressions in order to capture a nonlinear effect of trade on growth. We use 10 trade measures, divided into trade intensity ratios and measure of trade restrictions. For the former group of indicators only, our tests show that linear models have to be rejected in favour of threshold regressions. We have identified three different regimes, characterized by different relationships between growth and its determinants. Countries belonging to the regimes grouping higher‐income economies and poorer countries are diverging. The conditional convergence hypothesis is only accepted in the regime of middle‐income countries; a process of catching‐up can be mainly found in the case of few developing countries. For the vast majority of developing countries, divergence in per capita income seems to be the norm. The correlation between measures of trade restrictions and growth is different across regimes, and the positive effect of a decrease in tariffs on growth depends on the level of development; for the majority of the developing countries included in our sample a decrease in tariffs will have no effect on growth.