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Testing club convergence of economies by using a Broad-Based Development Index

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Abstract

The study of club convergence has been a major focus in the field of economic growth and development. The paper analyses the club convergence hypothesis going beyond the traditional use of GDP per capita. In this study, we attempt to analyze the convergence club of 102 countries based on augmented index for measuring development. This index consists of seven major indicator of development namely education, health, access to water and sanitation, energy use, environment, standard of living and good governance. These indicators are aggregated through weights obtained from Principal Component Analysis (PCA). Using this index of development we analyzed the club formation and transitional behavior of 102 countries over a period of 1996–2015. The study confirms four final club and shows transition during 2008. Further, to understand the determinant of the club membership we used ordered logit model. The result suggested that initial level of development and globalisation are the major drives in determining the club.

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Notes

  1. See for example, Parente and Prescott (1994), Barro and Sala-i-Martin (1992), Basu and Weil (1998), Perez-Sebastian (2000), Aghion et al. (2005), Monfort et al. (2013), Vojinović et al. (2009), Dey and Neogi (2015), Barro (2016) and Basel and Rao (2018).

  2. The most common practice while measuring development process is take the growth of per capita GDP as its proxy. However, authors like Sen (1983), Goossens and Mäkipää (2007), Stiglitz et al. (2009) and Schepelmann et al. (2010) have criticized the use of per capita GDP as a measure of development as the former fails to account for the overall progress in the economy which is far beyond what growth rates in income can capture.

  3. For details refer Phillips and Sul (2007). Transition modeling and econometric convergence tests. Econometrica, 75(6), 1771–1855.

  4. PCA is a technique of analysing and identifying patterns in data, and expressing the data in as to highlight their similarities and differences. It transforms a large number of correlated variables into smaller number of uncorrelated variables but retain the information in large set. These uncorrelated variables which are extracted from original set variables using their correlation matrix are called principle components.

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Acknowledgements

The authors would like to thank the editor and the anonymous referees for their valuable suggestions that helped to improve the manuscript.

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Authors and Affiliations

  1. Sri Sathya Sai Institute of Higher Learning, Anatapur, India

    Sayel Basel, K. U. Gopakumar & R. Prabhakara Rao

Authors
  1. Sayel Basel
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  3. R. Prabhakara Rao
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Correspondence to Sayel Basel.

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Appendices

Appendices

Appendix 1

Indicators

Variables

Weights

Education

Expected year of schooling (years)

0.079

Mean year of schooling (years)

0.080

Health

Life expectancy at birth, total (years)

0.080

Infant mortality rate (per 1000, live birth)

0.079

Access to water and sanitation

Improved sanitation facilities (percentage of population with access)

0.080

Improved water facilities (percentage of population with access)

0.078

Energy use

Non-renewable energy consumption (kg of oil equivalent per capita)

0.079

Renewable energy consumption (percentage of total final energy consumption)

0.058

Environment

Forest cover (km2)

0.078

CO2 emissions (Kt)

0.077

Standard of living

y–o-y GDP per capita growth (in percentages)

0.052

y–o-y Inflation, consumer prices (in percentages)

0.032

Gross capital formation (percentage of GDP)

0.047

Good governance

Rule of law (in percentiles)

0.045

Voice and accountability (in percentiles)

0.056

Appendix 2

Variables

Club 1

Club 2

Club 3

Club 4

Expected year of schooling (years)

13.70

12.97

12.48

11.57

Mean year of schooling (years)

8.79

8.44

7.79

7.16

Life expectancy at birth, total (years)

71.87

72.49

69.99

62.72

Infant mortality rate (per 1000, live birth)

22.87

21.63

27.83

47.15

Improved sanitation facilities (percentage of population with access)

84.24

76.13

71.45

55.29

Improved water facilities (percentage of population with access)

92.52

88.57

89.54

76.04

Non-renewable energy consumption (kg of oil equivalent per capita)

144.31

141.16

151.83

297.42

Renewable energy consumption (percentage of total final energy consumption)

27.47

25.50

31.56

49.96

Forest cover (km2)

132,288.07

318,761.72

704,129.31

426,327.16

CO2 emissions (Kt)

145,160.40

359,156.79

188,138.07

112,346.65

y–o-y GDP per capita growth (in percentages)

1.86

2.85

2.12

3.23

y–o-y Inflation, consumer prices (in percentages)

9.75

7.66

7.45

308.59

Gross capital formation (percentage of GDP)

24.29

24.42

23.58

22.76

Rule of law (in percentiles)

63.55

51.84

50.18

31.91

Voice and Accountability (in percentiles)

55.79

54.42

51.88

34.51

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Basel, S., Gopakumar, K.U. & Prabhakara Rao, R. Testing club convergence of economies by using a Broad-Based Development Index. GeoJournal 86, 2351–2365 (2021). https://doi.org/10.1007/s10708-020-10198-0

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