TY  - RPRT
        AU  - Pesaran, M. Hashem
        TI  - A Pair-Wise Approach to Testing for Output and Growth Convergence
        PY  - 2004/Sep/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 1313
        UR  - https://www.iza.org/publications/dp1313
        AB  - This paper proposes a pair-wise approach to testing for output convergence that considers all
N(N-1)/2 possible pairs of log per capita output gaps across N economies. A general
probabilistic definition of output convergence is also proposed, which suggests that all such
output gap pairs must be stationary with a constant mean. The approach is compatible with
individual output series having unit roots, does not involve the choice of a reference country
in computation of output gaps, and can be applied when N is large relative to T (the time
dimension of the panel). The proposed test is applied to output series in the Penn World
Tables over 1950-2000, as well as to Maddion’s historical series over 1870-2000. Overall, the
results do not support output convergence, and suggest that the findings of convergence
clubs in the literature might be spurious. However, significant evidence of growth
convergence is found, a result which is reasonably robust to the choice of the sample period
and country groupings. Non-convergence of log per capita outputs combined with growth
convergence suggests that while common technological progress seems to have been
diffusing reasonably widely across economies, there are nevertheless important countryspecific
factors (for example, wars, famines, revolutions, regime and institutional changes)
that render output gaps highly persistent, such that we can not be sure that the probability for
the outputs gaps to lie within a fixed range will be non-zero.
        KW  - economic growth
KW  - panel data models
KW  - convergence
KW  - common technological shocks
        ER  -