Assessing Income Convergence with a Long-Run Forecasting Approach: Some New Results

Silva Lopes, Artur (2024): Assessing Income Convergence with a Long-Run Forecasting Approach: Some New Results.

Abstract

Relying on low frequency econometric methods, a new simple procedure to assess international income convergence is introduced. It implements the long-run forecasting definition and discards short and medium-term information contents of the data as these may produce misleading evidence. Robustness to non-stationarities is achieved using first differences of (logged) per capita incomes.

Application to a selected sample of 90 different countries provides mixed but generally more positive evidence than most previous studies. Nevertheless, it casts many doubts on the inevitability of income convergence, at least in practically relevant time frames and as worldwide phenomenon.

• Item Type: MPRA Paper
• Language: English
• Keywords: ncome convergence; growth empirics; low frequency; interval forecasting
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations > N10 - General, International, or Comparative; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

References

Bernard, Andrew, B., and Steven N. Durlauf (1996). Interpreting tests of the convergence hypothesis, \Journal of Econometrics, 71, 161-73.

Bolt, Jutta, and Jan L. van Zanden (2020). Maddison style estimates of the evolution of the world economy. A new 2020 update. Maddison-Project Working Paper WP-15.

Christopoulos, Dimitris K., and Miguel A. Leon-Ledesma (2011). International output convergence,breaks and asymmetric adjustment, Studies in Nonlinear Dynamics and Econometrics, 15 (3), article 4.

Durlauf, S. N., Johnson, P. A. and Temple, J. R. W. (2005). Growth Econometrics, in Aghion, P. and Durlauf, S. N. (eds.), Handbook of Economic Growth,vol. 1A, Elsevier B. V., 555-677.

Hamilton, James D. (1994), Time Series Analysis, Princeton University Press, Princeton.

Hansen, Bruce E. (2022). Econometrics, Princeton University Press, Princeton.

Johnson, Paul, and Chris Papageorgiou (2020). What remains of cross-country convergence? The Journal of Economic Literature, 58, 129-175.

King, Alan and Carlyn Ramlogan-Dobson (2014). Are income differences within the OECD diminishing? Evidence from Fourier unit root tests, Studies in Nonlinear Dynamics and Econometrics, 18 (2), 185-199.

Lopes, Artur S. (2016). A simple proposal to improve the power of income convergence tests, Economics Letters, 138, 92 - 95.

Lopes, Artur S. (2023). Non-convergent incomes with a new DF-Fourier test: most likely you go your way (and I'll go mine), working paper, ISEG-ULisboa.

Milanovic, Branko (2016). Global Inequality: a new approach for the age of globalization, The Belknap Press of Harvard University Press.

Müller, Ulrich K., James H. Stock and Mark W. Watson (2020). An econometric model of international long-run growth dynamics, NBER working paper 26593.

Müller, Ulrich K., and Mark W. Watson (2008). Testing models of low-frequency variability, Econometrica, 76, 5, 979 - 1016.

Müller, Ulrich K., and Mark W. Watson (2016). Measuring uncertainty about long-run predictions, Review of Economic Studies 83, 1711 - 40.

Müller, Ulrich, and Mark W. Watson (2020). Low-Frequency Analysis of Economic Time Series, draft chapter for Handbook of Econometrics, Volume 7, edited by S. Durlauf, L.P. Hansen, J.J. Heckman, and R. Matzkin.

Pesaran, Mohammad H. (2007). A pair-wise approach to testing for output and growth convergence, Journal of Econometrics, 138, 312-55.

Quah, Danny (1993). Galton's Fallacy and Tests of the Convergence Hypothesis, Scandinavian Journal of Economics, 95(4), 427-443.

Startz, Richard (2020). The next hundred years of growth and convergence, Journal of Applied Econometrics, 35, 99-113.

The Economist (2014). Economic convergence: the headwinds return, Sep 13th (Updated Jun 11th 2015).