Convergence Hypothesis: Evidence from Panel Unit Root Test with Spatial Dependence
affiliation not provided to SSRN
Harris Manchester College, University of Oxford
Revista Ecos de Economía, No. 23, pp. 37-56, 2006
In this paper we test the convergence hypothesis by using a revised 4-step procedure of panel unit root test suggested by Evans and Karras (1996). We use data on output for 24 OECD countries over 40 years long. Whether the convergence, if any, is conditional or absolute is also examined. According to a proposition by Baltagi, Bresson, and Pirotte (2005), we incorporate spatial autoregressive error into a fixed-effect panel model to account for not only the heterogeneous panel structure, but also spatial dependence, which might induce lower statistical power of conventional panel unit root test. Our empirical results indicate that output is converging among OECD countries. However, convergence is characterized as conditional. The results also report a relatively lower convergence speed compared to conventional panel studies.
Keywords: Convergence Hypothesis, Panel Unit Root Test, Spatial Dependence
JEL Classification: O40, C21, C23Accepted Paper Series
Date posted: May 28, 2008
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