Robust Tests for Convergence Clubs

44 Pages Posted: 14 Feb 2019

See all articles by Luisa Corrado

Luisa Corrado

University of Rome Tor Vergata Department of Economics and Finance

Thanasis Stengos

University of Guelph - Department of Economics

Melvyn Weeks

University of Cambridge - Faculty of Economics and Politics

Mustafa Ege Yazgan

Istanbul Bilgi University

Date Written: December 26, 2018

Abstract

In many applications common in testing for convergence the number of cross-sectional units is large and the number of time periods are few. In these situations asymptotic tests based on an omnibus null hypothesis are characterised by a number of problems. In this paper we propose a multiple pairwise comparisons method based on an a recursive bootstrap to test for convergence with no prior information on the composition of convergence clubs. Monte Carlo simulations suggest that our bootstrap-based test performs well to correctly identify convergence clubs when compared with other similar tests that rely on asymptotic arguments. Across a potentially large number of regions, using both cross-country and regional data for the European Union we find that the size distortion which afflicts standard tests and results in a bias towards finding less convergence, is ameliorated when we utilise our bootstrap test.

Keywords: multivariate stationarity, bootstrap tests, regional convergence

JEL Classification: C51, R11, R15

Suggested Citation

Corrado, Luisa and Stengos, Thanasis and Weeks, Melvyn and Yazgan, Mustafa Ege, Robust Tests for Convergence Clubs (December 26, 2018). CEIS Working Paper No. 451. Available at SSRN: https://ssrn.com/abstract=3333113 or http://dx.doi.org/10.2139/ssrn.3333113

Luisa Corrado (Contact Author)

University of Rome Tor Vergata Department of Economics and Finance ( email )

Via Columbia n.2
Rome, rome 00100
Italy

Thanasis Stengos

University of Guelph - Department of Economics ( email )

50 Stone Road East
Guelph, Ontario N1G 2W1
Canada

Melvyn Weeks

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

Mustafa Ege Yazgan

Istanbul Bilgi University ( email )

Eski Silahtarağa Elektrik Santralı
Silahtarağa Mah. Kazım Karabekir Cad. No: 1 Eyüp
Istanbul, 34060
Turkey

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