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Income Convergence Hypothesis: A Regional Comparison of selected East and South Asian Economies

Haider, Adnan and Hameed, Shahzad and Wajid, Abdul (2010): Income Convergence Hypothesis: A Regional Comparison of selected East and South Asian Economies.

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The empirical literature on income convergence hypothesis is available for almost all developed or industrialized countries. However, regarding developing economies especially, South Asian region few studies attempted it in their convergence related empirical analysis. Therefore, the central objective of this paper is to empirically examine whether or not income convergence is occurring over time in South Asian economies. Furthermore, within Asian block, the study also compares the convergence results of South Asian economies with its parallel East Asian region. The empirical analysis test both absolute convergence hypothesis (using beta and sigma convergence methodologies as well as Theil’s inequality based approach) and conditional convergence hypothesis (by taking care of relevant control variables). These convergence tests are based on conventional regression equation approach by taking real GDP per capita with some explanatory control variables. Both steps employ the pooled cross-section, time series data set, which provides new insights in the convergence tests for real GDP per capita. Although, empirical analysis of this paper is unable to finds any evidence to accept the null hypothesis of the presence of absolute income convergence. However, our results show the presence of conditional income convergence for both East and South Asian economies. It indicates that income gap between these two groups of economies has narrow down conditional based on some common characteristics but it still remains quite large.

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