Robust Tests for Convergence Clubs
Ege Yazgan, M.
Cambridge Working Papers in Economics
Faculty of Economics
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Corrado, L., Stengos, T., Weeks, M., & Ege Yazgan, M. (2018). Robust Tests for Convergence Clubs. https://doi.org/10.17863/CAM.35572
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 finnding less convergence, is ameliorated when we utilise our bootstrap test.
Multivariate stationarity, bootstrap tests, regional convergence.
This record's DOI: https://doi.org/10.17863/CAM.35572
This record's URL: https://www.repository.cam.ac.uk/handle/1810/288254
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