Club Convergence Hypothesis Research Articles

A review of Phillips‐Sul approach‐based club convergence tests

AbstractThe Phillips‐Sul approach to testing the club convergence hypothesis has attracted considerable research interest in recent years due to its advantages over alternative methods. This paper aims to review theoretical papers that extend the Phillips‐Sul approach, empirical studies that apply Phillips‐Sul approach‐based club convergence tests, as well as the software used to execute these methods. The review revealed that, first, the Phillips‐Sul approach has seen modifications regarding the procedure of trend extraction from time series, the log t regression and the algorithm clustering panel units into convergence clubs. Second, the Phillips‐Sul approach has been widely used not only in economics and finance but also in ecological, energy and health studies. Finally, the paper provides guidance for further development of the Phillips‐Sul approach. This review is useful for researchers and practitioners investigating convergence and club convergence processes.

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.

Convergence of Output per Worker in G7 Countries: Evidence from the Club Convergence Test

In this study, it is aimed to present the club convergence hypothesis within the framework of per capita output indicator by using annual data for G7 countries and 1950-2018 period. For this purpose, using convergence test proposed by Phillips and Sul (2007), it was analyzed whether the trade openness shows convergence clubs or not According to Phillips and Sul (2007) analysis, there is no general convergence club for all countries and different convergence clubs. Phillips and Sul (2007) analysis revealed that 2 per capita out convergence clubs and 1 divergence club.

Wealthy, healthy and green: Are we there yet?

• Applied cub-convergence test and panel data analysis on OECD data in 1990–2015 period. • There was no significant evidence of overall convergence except for Carbon monoxide and Nitrogen oxides. • Convergence occurred among groups of countries in all three aspects. • Human capital is crucial to achieving the balance between healthy, wealthy and green. The history of humankind witnessed a continual improvement of living standards. The introduction of agriculture stabled our food supplies. The industrial revolution eradicated hunger and reduced poverty across the globe. During the development process, human also reached the capacity to create substantial impacts on the environment, which has created adverse effects on our health. We believe that technological progress will enable us to achieve a balance between health, income and the environment. In this study, we test the club convergence hypothesis using data on economic development, health and environment of 36 OECD countries during the 1990–2015 period. Using the club convergence test, we found significant evidence of overall convergence only in the emission of two air pollutants: Carbon monoxide and Nitrogen oxides. However, groups of countries have converged in all three aspects. Also, our panel data analysis showed that improving human capital is crucial for the synergy between good health, clean environment and positive economic growth.

Club convergence of per capita disposable income in the United States

AbstractThis paper examines the long‐run trends in per‐capita income across the US states (1995–2018). Contrary to the majority of the literature on income convergence, which uses pre‐tax income as the variable of reference, we focus on per‐capita disposable household income. This enables us to better identify any convergence pattern. We apply the Phillips and Sul (2007, 2009) convergence methodology to check the existence of club convergence across the United States and within the Bureau of Economic Analysis (BEA) regions. Our findings confirm the club convergence hypothesis and highlight the role of tax policy in reducing regional disparities.

Economic growth and club convergence: Is there a neighbour's effect?

AbstractThe study investigates economic growth and club convergence in a cross‐country framework from 1970–1971 to 2014–2015. In particular, we test the club convergence hypothesis through a non‐parametric and spatial interaction setting. The kernel density estimate shows a cyclical behaviour of per capita incomes, albeit following a common steady state. The conditional distribution is concentrated around the mean indicating a similar relative position across the heterogeneous countries. The transitional probabilities are strong enough to demonstrate a significant sign of clubbing. On testing the convergence hypothesis, we perceive strong evidence of club convergence across the countries. A persistent spatial dependence is unveiled across the proximities, therefore confirming the neighbour's effects in club formation. The study realizes a need to harmonize the interaction between the countries to improve the conditions for achieving long‐run sustained economic growth.

Regional income disparities and convergence clubs in Indonesia: new district-level evidence

This article aims to re-examine the regional convergence hypothesis on income in Indonesia over the 2000–2017 period. By applying a non-linear dynamic factor model, this article tests the club convergence hypothesis using a novel dataset of income at the district level. The results show significant five convergence clubs in Indonesian districts’ income dynamics, implying the persistence of income disparity problems across districts even after implementing the decentralization policy. The subsequent analysis reveals two appealing features regarding the convergence clubs. First, districts belonging to the same province tend to be in the same club, and second, districts with specific characteristics (i.e. big cities or natural resources-rich regions) dominate the highest income club. Overall, our findings suggest some insightful policy implications, including the importance of differentiated development policies across convergence clubs and inter-provincial development strategies.

Макрорегионы в стратегии пространственного развития России: верификация границ по перспективным экономическим специализациям

The purpose of the study is to verify the correspondence between the inclusion of regions in macroregions and the distribution of promising economic specializations by regions. The initial data are taken from the “Spatial Development Strategy of the Russian Federation for the Period until 2025”. The theoretical basis of the study was the concept of “economic convergence.” According to the initial hypothesis, the boundaries of macro-regions reflect the distribution of promising specializations by regions in the case of relative convergence of Russian regions into twelve clubs (macro-regions). To test the hypothesis, the idea of contrasting and blurry (fuzzy) boundaries of regions is formulated. A quantitative measure of the difference between the two regions by a combination of promising economic specializations is proposed. To confirm the club convergence hypothesis, it is necessary that the interregional boundaries along the perimeter of macro-regions be contrasted, and within the macro-regions – blurred. Calculations showed that most of the inter-regional borders are blurred, and contrasting borders are more common within macroregions than along their perimeter. Therefore, the initial hypothesis was recognized as erroneous and an alternative hypothesis was adopted when the union of regions into groups according to a combination of promising economic specializations does not correspond to the union of regions into macro-regions. The results can be used to adjust the spatial development strategy. It is proposed to take into account Russias transition to the digital economy and the introduction of artificial intelligence systems in determining promising specializations.

Exploring the tourism markets’ convergence hypothesis in Italy

This article aims at investigating the tourism markets’ convergence hypothesis across Italy’s 20 major source markets. To reach our goal, we use monthly data of tourist arrivals and overnights over the period 2008–2018 and the time-varying factor model developed by Phillips and Sul (2007, 2009). Our findings suggest the absence of full (absolute) convergence, leading us to accept the hypothesis of club convergence. We show that the traditionally more important source markets have a tendency to persist, while Asian countries show heterogeneous behaviour. Furthermore, the relative decline in the contribution to total arrivals and overnights of several international source markets calls for a reconsideration of the promotional strategies to stimulate inbound tourism from these countries.

Testing club convergence of economies by using a Broad-Based Development Index

The study of club convergence has been a major focus in the field of economic growth and development. The paper analyses the club convergence hypothesis going beyond the traditional use of GDP per capita. In this study, we attempt to analyze the convergence club of 102 countries based on augmented index for measuring development. This index consists of seven major indicator of development namely education, health, access to water and sanitation, energy use, environment, standard of living and good governance. These indicators are aggregated through weights obtained from Principal Component Analysis (PCA). Using this index of development we analyzed the club formation and transitional behavior of 102 countries over a period of 1996–2015. The study confirms four final club and shows transition during 2008. Further, to understand the determinant of the club membership we used ordered logit model. The result suggested that initial level of development and globalisation are the major drives in determining the club.

Convergence in military expenditure and economic growth in Africa and its regional economic communities: evidence from a club clustering algorithm

This study examines the convergence in military expenditure and economic growth for a panel of 35 African countries between 1990 and 2015. We employ the Phillips and Sul methodology to achieve our objective. Overall, the results at Africa level reveal no evidence of convergence in military expenditure and growth. However, after robustness tests, the final club classification results do support the hypothesis of club convergence for the two variables. The results of the analysis show that there exist: (i) two convergence clubs for military expenditure; and (ii) five convergence clubs for growth. The empirical findings further suggest that the Regional Economic Communities (RECs) form distinct convergent and divergent clubs, exhibiting considerable heterogeneity in the underlying defence and growth patterns. In addition, the empirics confirm that the countries in each region appear to have chosen dissimilar defence and growth transition paths. The policy implications are discussed in the concluding section of this study.

Does debt convergence hold in case of India?

PurposeThe purpose of this paper is to examine the convergence analysis of public debt among Indian states using annual data from 1990‒1991 to 2014‒2015.Design/methodology/approachThe paper tests this hypothesis using club convergence technique propounded by Phillips and Sul (2007).FindingsThe results reveal the existence of debt divergence for overall Indian states. States are formed into four clubs on the basis of their level of debt, and three clubs support the hypothesis of club convergence. Further, the total public debt decomposes into three compositions such as market loans, bank loans and loans and advances from the central government. The existence of convergence is found for market loans and bank loans; however, the presence of divergence is found in case of loans and advances for overall states.Practical implicationsSince public debt plays an important role for fiscal health of the Indian states, findings of this study suggest to squeeze the fiscal consolidation further for Indian states whose debts as a percentage to gross state domestic product are on the higher side. Further, the examination of debt convergence helps to manage debt level among the states because heavy dependence on public debt could retard investment and economic growth.Originality/valueWhereas bulk of empirical studies emphasize on examining the linkage between public debt and economic growth, and issue on debt sustainability across Indian states, examination of convergence of debt and its compositions (markets borrowings, bank loans and loans and advances from the central government) among the Indian states is scanty.

TECHNOLOGICAL CAPABILITIES AND PATTERNS OF INCOME CONVERGENCE IN EUROPE: A CLUSTER ANALYSIS

This paper analyses the patterns of convergence across the European Union countries in terms of both economic growth and technological conditions during the period 1995-2013. We apply the methodology of Phillips-Sul (2007) to study convergence in real income per capita and countries’ technological capabilities. We consider separately eight technological indicators as proxies for a country's innovative ability and absorptive capacity. The results support the club convergence hypothesis for income and some technology-related indicators, and offer an approximation to the role that technological capabilities could play in the income convergence process.

Convergence in Income Inequality: Further Evidence from the Club Clustering Methodology across States in the U.S.

This paper contributes to the sparse literature on inequality convergence by empirically testing convergence across states in the U.S. This sample period encompasses a series of different periods that the existing literature discusses -- the Great Depression (1929–1944), the Great Compression (1945–1979), the Great Divergence (1980-present), the Great Moderation (1982–2007), and the Great Recession (2007–2009). This paper implements the relatively new method of panel convergence testing, recommended by Phillips and Sul (2007). This method examines the club convergence hypothesis, which argues that certain countries, states, sectors, or regions belong to a club that moves from disequilibrium positions to their club-specific steady-state positions. We find strong support for convergence through the late 1970s and early 1980s, and then evidence of divergence. The divergence, however, moves the dispersion of inequality measures across states only a fraction of the way back to their levels in the early part of the twentieth century.

IS THE CLUB CONVERGENCE HYPOTHESIS VALID FOR TURKEY TOURISM MARKET?

This study empirically revisits and investigates the tourism convergence via using the convergence club algorithm developed by Phillips and Sul (2007: Transition Modeling and Econometric Convergence Tests. Econometrica.75, 1771–1855). Abbott, De Vita and Altinay (2012: Revisiting The Convergence Hypothesis For Tourism Markets: Evidence From Turkey Using The Pairwise Approach. Tourism Management, 33, 537-544.) not to support club convergence hypothesis valid for Turkey tourism market. Yilanci and Eris (2012: Are tourism markets of Turkey converging or not? A Fourier stationary analysis. Anatolia, 23, 207-216 ) and, Ozcan and Erdogan (2015: Are Turkey's tourism markets converging? Evidence from the two-step LM and three-step RALS-LM unit root. Current Issues in Tourism, 1-18 ) support convergence hypothesis valid for some Turkey tourism market among countries. Therefore, unlike the findings of previously studies, we submit a club convergence for Turkey.

Is the Club Convergence Hypothesis Validy for Turkey Tourism Market

This study empirically revisits and investigates the tourism convergence via using the convergence club algorithm developed by Phillips and Sul (2007: Transition Modeling and Econometric Convergence Tests. Econometrica.75, 1771–1855). Abbott, De Vita and Altinay (2012: Revisiting The Convergence Hypothesis For Tourism Markets: Evidence From Turkey Using The Pairwise Approach. Tourism Management, 33, 537-544.) not to support club convergence hypothesis valid for Turkey tourism market. Yilanci and Eris (2012: Are tourism markets of Turkey converging or not? A Fourier stationary analysis. Anatolia, 23, 207-216) and, Ozcan and Erdogan (2015: Are Turkey's tourism markets converging? Evidence from the two-step LM and three-step RALS-LM unit root. Current Issues in Tourism, 1-18) support convergence hypothesis valid for some Turkey tourism market among countries. Therefore, unlike the findings of previously studies, we submit a club convergence for Turkey.

Club convergence and clustering of U.S. energy-related CO2 emissions

This study examines the convergence of energy-related carbon dioxide emissions among a panel of U.S. states between the period 1960–2010. This examination is carried out by means of a two-stage procedure. In the first stage, we conduct an endogenous grouping, regression-based convergence test. Unlike previous studies, this methodology endogenously identifies groups of states with emissions that are converging to a similar steady state growth path over time. In the second stage, we evaluate the conditional rate of convergence for the whole sample and for each club using panel data, fixed effects models that control for unobserved, time-invariant heterogeneous effects. More specifically, we examine the rates of convergence conditional on certain structural and non-structural characteristics of the state economy. Results from stage one and stage two suggest that one group of twenty-six states is converging to a unique steady-state equilibrium, and otherwise, the remaining states are diverging. Finally, we discuss different policy approaches to mitigating carbon dioxide emissions based on the club convergence hypothesis.

Exploring the regional distribution of tourism and the extent to which there is convergence

In this paper we test the hypothesis of convergence in a set of twelve of the main tourism source markets of Spain over a time period that ranges from January 2000 to September 2015. We analyse the potential convergence by following an econometric strategy consisting of three different methodologies. Firstly, we test for the presence of full convergence in the dataset by means of the panel stationary test developed by Hadri (2000). Next, we conduct a robustness check for the full convergence hypothesis by considering the potential existence of structural breaks in the dataset through the test proposed by Carrion-i-Silvestre et al. (2005). Finally, the hypothesis of club convergence (Philips and Sul, 2007) is also tested. The results point to absence of full convergence even when controlling for structural breaks while three different clubs of convergence are found. We discuss potential policy implications that can be extracted from these results.

Regional club convergence in the EU: evidence from a panel data analysis

We investigate club convergence in income per capita in 194 European NUTS-2 regions using a nonlinear, time-varying factor model that allows for individual and transitional heterogeneity. Moreover, we extend an existing club clustering algorithm with two post-clustering merging algorithms that finalize club formation. We also apply an ordered response model to assess the role of initial and structural conditions, as well as geographic factors. Our results indicate the presence of four convergence clubs in the EU-15 countries. In support of the club convergence hypothesis, we find that initial conditions matter for the resulting income distribution. Geographic clustering is quite pronounced; besides a north-to-south division, we detect high-income clusters for capital cities. We conclude that the main supranational policy challenge is the politically sensitive handling of a multi-speed Europe.

Evaluating multiple spatial dimensions of economic growth in Brazil using spatial panel data models

The goal of this paper is to evaluate the results of regional economic growth model estimations at multiple spatial scales using spatial panel data models. The spatial scales examined are minimum comparable areas, microregions, mesoregions and states between 1970 and 2000. Alternative spatial panel data models with fixed effects were systematically estimated across those spatial scales to demonstrate that the estimated coefficients change with the scale level. The results show that the conclusions obtained from growth regressions depend on the choice of spatial scale. First, the values of spatial spillover coefficients vary according to the spatial scale under analysis. In general, such coefficients are statistically significant at the MCA, microregional and mesoregional levels, however, at state level those coefficients are no longer statistically significant, suggesting that spatial spillovers are bounded in space. Moreover, the positive average-years-of-schooling direct effect coefficient increases as more aggregate spatial scales are used. Population density coefficients show that higher populated areas are harmful to economic growth, indicating that congestion effects are operating in all spatial scales, but their magnitudes vary across geographic scales. Finally, the club convergence hypothesis cannot be rejected suggesting that there are differences in the convergence processes between the north and south in Brazil. Furthermore, the paper discusses the potential theoretical reasons for different results found across estimations at different spatial scales.