Testing for Absolute Convergence: A Panel Data Approach
This paper develops a new test for absolute convergence under cross sectional dependence. A detailed Monte Carlo study is then carried out to evaluate the performance of this test in terms of size and power. From our Monte Carlo simulations it turns out that the test performs well with respect to size and power. The proposed test is then applied to find whether there is absolute convergence in terms of real per capita income across various countries in OECDs. Using our test which is robust to cross sectional dependence, it is found that various countries in OECD are absolutely convergent.
KeywordsUnit Root Test Absolute Convergence Nominal Size Panel Unit Root Test Cross Sectional Dependence
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