Abstract
This chapter describes the different notions of cross-section and time-series convergence as well as presents a brief literature review of the main studies in the field of convergence and a brief account of their results. It also motivates the present study that investigates the existence of stochastic and deterministic convergence of real output per worker and its sources in 21 OECD countries over the period 1970–2011. It argues that the application of a large battery of panel unit root and stationarity tests, all robust to the presence of cross-sectional dependence, enables us to be more confident that non-rejections of the null of a unit root are not caused by the low power of conventional unit root tests of the ADF-type. A major novelty of our study compared to previous ones is that we investigate the existence of convergence patterns in the series of physical capital per worker, human capital, total factor productivity and average annual hours worked, which constitute the main sources of output.
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Notes
- 1.
The terms conditional and unconditional (absolute) refer to whether convergence takes place after controlling or not for country-specific characteristics, which explain cross-country differences in steady state income levels.
- 2.
Employing multivariate time-series techniques, Attfield (2003) investigates convergence in seven European countries from 1980. He finds evidence of stochastic convergence in five countries after allowing for a structural break in the cointegrating space.
- 3.
There are two exceptions to this. Miller and Upadhyay (2002) test for β-absolute convergence of real GDP per worker and TFP for a sample of 83 countries over the period 1960–1989 through cross-section regressions as well as for conditional convergence via fixed-effects estimation. Their findings support both absolute and conditional convergence of TFP, but only conditional convergence of labor productivity. Grier and Grier (2007) investigate the existence of σ-convergence in output per worker and investment rates of physical and human capital for a sample of 90 countries over 1961–1999 as well as for a subsample of 22 rich countries. Whereas both output per capita and investment rates appear to converge in the sample of rich countries, in the full sample investment rates converge but per capita output diverges.
- 4.
In our case, all the panel unit root tests, with the exception of those of Moon and Perron (2004), take the null hypothesis of a unit root in all panel members versus the alternative of stationarity in at least one cross-sectional unit. In contrast, Moon and Perron’s statistics take stationarity in all panel members as the alternative hypothesis.
- 5.
The other two cases are when there is rejection in both panel unit root and stationarity tests, which would indicate the existence of a mixture of stationarity and nonstationarity in the panel, whereas failure to reject the null in both tests could lead to inconclusive inferences.
- 6.
Kuo and Mikkola (2001) and Bai and Ng (2004b) apply similar arguments to the analysis of the Purchasing Power Parity question.
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Hernández-Salmerón, M., Romero-Ávila, D. (2015). Introduction. In: Convergence in Output and Its Sources Among Industrialised Countries. SpringerBriefs in Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-13635-6_1
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DOI: https://doi.org/10.1007/978-3-319-13635-6_1
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