Testing for Stochastic and Beta-convergence in Latin American Countries

Escobari, Diego (2011): Testing for Stochastic and Beta-convergence in Latin American Countries. Published in: Applied Econometrics and International Development , Vol. 11, No. 2 (2011): pp. 123-138.

Abstract

This paper uses time-series data from nineteen Latin American countries and the U.S. to test for income convergence using two existing definitions of convergence and a new testable definition of β-convergence. Only Dominican Republic and Paraguay were found to pair-wise converge according to the Bernard and Durlauf (1995) definition. More evidence of stochastic convergence exists when allowing for structural breaks using the two-break minimum LM unit root of Lee and Strazicich (2003). The results show greater evidence of convergence within Central America than within South America. Dominican Republic is the only country that complies with the neoclassical conditions of income convergence.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic growth; Convergence; Latin America; Time-series
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O54 - Latin America ; Caribbean; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

References

Andrade, C., Pinho, C. and Pinho, M. (2010). Exploring regional convergence: Evidence from 19 European countries, 1991-2008. Applied Econometrics and International Development, Vol. 10, 87-109.

Barro, R. (1991). Economic growth in a cross section of countries. Quarterly Journal of Economics, Vol. 106, 407-443.

Barro, R. and Sala-i-Martin, X. (1995). Economic growth. MIT Press.

Baumol, W. (1996). Productivity growth, convergence and welfare: What the long run data show. American Economic Review, Vol. 76, 1072-1085.

Bernard, A.B. and Durlauf, S.N. (1995). Convergence in international output. Journal of Applied Econometrics, Vol. 10, 97-108.

Carlino, G. and Mills, L. (1993). Are U.S. regional incomes converging? A time series analysis. Journal of Monetary Economics, Vol. 32, 335-346.

Chowdhury, Khorshed. (2005). What’s happening to per capita GDP in the ASEAN countries. Applied Econometrics and International Development, Vol. 5, 49-68.

Enders, W. (2004). Applied econometric time series. Wiley, 2nd edition.

Greasley, D. and Oxley, L. (1997). Time-series based tests of the convergence hypothesis: Some positive results. Economic Letters, Vol. 56, 143-147.

Heston, A., Summers, R. and Aden, B. (2006). Penn World Table, Version 6.2. Center for international comparisons of production, income, and prices at the University of Pennsylvania.

Islam, N. (2003). What have we learnt from the convergence debate? Journal of Economic Surveys, Vol. 17, 309-354.

Karras, G. (2008). Growth and convergence, 1950-2003. What can we learn from the Solow model? Applied Econometrics and International Development, Vol. 8, 5-18.

Konya, L. and Guisan, M-C. (2008). What does the Human Development Index tell us about convergence? Applied Econometrics and International Development, Vol. 9, 5-20.

Lee, J. and Strazicich, M. (1999). Minimum LM unit root test. University of Central Florida Working Paper.

Lee, J. and Strazicich, M. (2003). Minimum Lagrange Multiplier unit root test with two structural breaks. The Review of Economics and Statistics, Vol. 85, 1082-1089.

Li, Q. and Papell, D. (1999). Convergence of International Output: Time series evidence for 16 OECD countries. International Review of Economics and Finance, Vol. 8, 267-280.

Lumsdaine, R. and Papell, D. (1997). Multiple trend breaks and the unit-root hypothesis. Review of Economics and Statistics, Vol. 79, 212-218.

Maeso-Fernandez, F. (2003). A time series approach to β convergence. Applied Economics, Vol. 35, 1133-1146.

Mankiw, G., Romer, D. and Weil, D. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, Vol. 107, 407-437.

Oyarzun, C. and Araya, I. (2001). Long run dynamics of regional growth in Chile. Estudios de Economia, Vol. 28, 69-78.

Perron, P. (1989). The great crash, the oil-price shock and the unit-root hypothesis. Econometrica, Vol. 57, 1361-1401.

Perron, P. and Vogelsang, T. (1992). Testing for a unit root in a time series with a changing mean: Corrections and extensions. Journal of Business & Economic Statistics, Vol. 10, 467-470.

Quah, D. (1993). Empirical cross-section dynamics in economic growth. European Economic Review, Vol. 37, 426-434.

Schmidt, P. and Phillips, P. (1992). LM tests for a unit root in the presence of deterministic trends. Oxford Bulletin of Economics and Statistics, Vol. 54, 257-287.

Strazicich, M., Lee, J. and Day, E. (2004). Are incomes converging among OECD countries? Time series evidence with two structural breaks. Journal of Macroeconomics, Vol. 26, 131-145.

Thorp, R. (1998). Progress, Poverty and Exclusion: an Economic History of Latin America in the Twentieth Century. Washington DC: Inter-American Development Bank.

Zivot, E. and Andrews, W. (1992). Further evidence on the great crash, the oil-price shock and the unit-root hypothesis. Journal of Business & Economic Statistics, Vol. 10, 251-270.