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Nonlinear Models of Convergence

Gluschenko, Konstantin (2020): Nonlinear Models of Convergence.

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A sufficient issue in studies of economic development is whether economies (countries, regions of a country, etc.) converge to one another in terms of per capita income. In this paper, nonlinear asymptotically subsiding trends of income gap in a pair of economies model the convergence process. A few specific forms of such trends are proposed: log-exponential trend, exponential trend, and fractional trend. A pair of economies is deemed converging if time series of their income gap is stationary about any of these trends. To test for stationarity, standard unit root tests are applied with non-standard test statistics that are estimated for each kind of the trends.

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