Regime-dependent output convergence in Latin America

  • Mark Holmes

Abstract

This paper tests for long-run output convergence between a sample of eight
Latin American countries and over the study period 1900-2003. The key
contribution of this paper is in terms of the econometric methodology where
non-stationarity of log real per capita income differentials is tested within a
Markov regime-switching framework. In contrast to existing studies, this paper
defines two new concepts of output convergence where one allows for the
possibility that output differentials behaviour either switches between stationary
and non-stationary regimes (partial convergence), or switches between stationary
regimes characterised by differing degrees of persistence (varied convergence).
Whereas standard univariate and panel data unit root testing clearly suggest
that output differentials are non-stationary, employment of the regime-switching
methodology indicates that most of the sample is characterised by the existence
of two distinct stationary regimes. Furthermore, it is argued that the often-cited
convergence rate of two per cent per annum is likely to be an underestimate.
Keywords Output convergence, regime-switching, stationarity, unit root tests
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How to Cite
Holmes, M. (2016). Regime-dependent output convergence in Latin America. Estudios de Economía, 33(1), pp. 65-81. Retrieved from https://estudiosdeeconomia.uchile.cl/index.php/EDE/article/view/40321/43452
Section
Articles
Published
2016-04-26