Productivity Convergence: A Panel Data Approach in the Presence of Cross-Country Correlation
UCSC Dept. of Economics Working Paper No. 403
11 Pages Posted: 6 Nov 1998
Date Written: June 1998
This paper reexamines previous favorable results of productivity convergence, accounting for the presence of cross-country correlation. The high levels of correlation among the OECD countries analyzed cause a significant size distortion in the testing procedure. The effect of the correlation structure on the distribution of the panel data unit root (PDUR) test statistic is investigated using Monte Carlo simulation techniques. The change in the distribution of the PDRU statistic switches the inferences drawn by the test: only 2 out of the 9 sectors analyzed show evidence of productivity convergence once the correlation structure is accounted for.
JEL Classification: E23, C33
Suggested Citation: Suggested Citation