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Revisiting income convergence with DF-Fourier tests: old evidence with a new test

Silva Lopes, Artur (2020): Revisiting income convergence with DF-Fourier tests: old evidence with a new test.

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Abstract

Motivated by the purpose to assess the income convergence hypothesis, a simple new Fourier-type unit root test of the Dickey-Fuller family is introduced and analysed. In spite of a few shortcomings that it shares with rival tests, the proposed test generally improves upon them in terms of power performance in small samples. The empirical results that it produces for a recent and updated sample of data for 25 countries clearly contrast with previous evidence produced by the Fourier approach and, more generally, they also contradict a recent wave of optimism concerning income convergence, as they are mostly unfavourable to it.

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