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Analysis of club convergence for economies: identification and testing using development indices

Abstract

This paper attempts to identify club convergence using the procedure suggested by Phillips and Sul (Phillips and Sul, Econometrica 75:1771–1855, 2007, Phillips and Sul, J Appl Economet 24:1153–1185, 2009) based on GDP per capita for 102 countries across the globe for the time period 1996 through 2015. The results indicate the presence of five clubs with four countries belonging to the non- convergent group. After identifying the clubs, the study analyzed the transitional behaviors among the clubs. Finally, to understand the determinant of the club membership, we used the ordered logit model by considering the initial level of GDP, gross capital formation, growth rate of population, and four indices, namely social, governance, sustainability, and globalization as the explanatory variables. The results suggest that the initial level of GDP per capita, gross capital formation, social, governance, sustainability, and globalization are the major factors for determining the club.

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Notes

  1. PCA is a technique of analyzing 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.

  2. From now on, final clubs are represented as club 1, club 2, club 3, club 4, and club 5 for FC 1, FC 2, FC 3, FC 4, and FC 5, respectively.

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Acknowledgements

We gratefully acknowledge the anonymous referees for valuable comments on an earlier draft.

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Appendices

Appendix 1

Index Indicators Variables Weights
Social Education Expected year of schooling (years) 0.167
Mean Year Of Schooling (years) 0.167
Health Life expectancy at birth, total (years) 0.166
Infant mortality rate (per 1000, live birth) 0.167
Access to water and sanitation Improved sanitation facilities (percentage of population with access) 0.167
Improved water facilities (percentage of population with access) 0.166
Sustainability Energy use Non-renewable energy consumption (Kg of oil equivalent per capita) 0.325
Renewable energy consumption (percentage of total final energy consumption) 0.039
Environment Forest cover (Sq. Km) 0.313
CO2 emissions (Kt) 0.323
Governance Good institutional structure Control of corruption (in percentiles) 0.197
Government effectiveness (in percentiles) 0.074
Regulatory quality (in percentiles) 0.210
Political stability and absence of violence/terrorism (in percentiles) 0.151
Rule of law (in percentiles) 0.191
Voice and Accountability (in percentiles) 0.178

Appendix 2

Initial Club \(\widehat{b}\) N Countries in club
Initial Club 1 0.100 (1.919) 10 Australia, Azerbaijan, Canada, China, Denmark, Ireland, Netherlands, Singapore, Sweden, United States
Initial Club 2 0.085 (1.492) 7 Austria, Belgium, Finland, Germany, Iceland, Japan, Korea Rep
Initial Club 3 0.158 (2.738) 5 France, Kazakhstan, Kuwait, Slovak Republic, United Kingdom
Initial Club 4 0.115 (1.801) 15 Australia, Austria, Benin, Bolivia, Botswana, Dominican Republic, Ecuador, Belarus, Chile, Cyprus, Czech Republic, Estonia, Israel, Italy, Malta, Panama, Poland, Russian Federation, Slovenia, Spain, Turkey, Uruguay
Initial Club 5 0.107 (1.901) 13 Armenia, Bahrain, Brazil, Bulgaria, Croatia, Greece, Hungary, Malaysia, Mauritius, Peru, Portugal, Romania, Saudi Arabia
Initial Club 6 0.274 (4.178) 13 Albania, Argentina, Botswana, Colombia, Costa Rica, Dominican Republic, Gabon, Iran Islamic Rep., Mexico, Mongolia, South Africa, Sri Lanka, Thailand
Initial Club 7 0.009 (0.184) 17 Algeria, Ecuador, Egypt Arab Rep., El Salvador, Guatemala, India, Indonesia, Jamaica, Jordan, Moldova, Morocco, Paraguay, Philippines, Sudan, Tunisia, Ukraine, Vietnam
Initial Club 8 0.181 (3.382) 6 Bangladesh, Bolivia, Cambodia, Ghana, Honduras, Nicaragua
Initial Club 9 0.104 (2.410) 12 Benin, Cameroon, Haiti, Kenya, Kyrgyz Republic, Mozambique, Nepal, Pakistan, Senegal, Tanzania, Yemen Rep., Zimbabwe
Non-Convergent Group − 0.716 (− 29.197) 4 Congo Dem. Rep., Norway, Switzerland, Togo

The values in parentheses are the t-statistic. N is the number of countries in the club

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Basel, S., Rao, R.P. & Gopakumar, K.U. Analysis of club convergence for economies: identification and testing using development indices. Asia-Pac J Reg Sci 5, 885–908 (2021). https://doi.org/10.1007/s41685-021-00205-8

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Keywords

  • Club convergence
  • Log t regression
  • Transitional behavior
  • Ordered logit
  • Globalization

JEL Classification

  • C33
  • O47
  • O40
  • O50