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INCOME THRESHOLDS AND GROWTH CONVERGENCE: A PANEL DATA APPROACH *
Author(s) -
HO TSUNGWU
Publication year - 2006
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2006.00487.x
Subject(s) - economics , convergence (economics) , per capita income , panel data , income distribution , developing country , demographic economics , econometrics , macroeconomics , economic growth , inequality , mathematics , mathematical analysis , demography , sociology
This paper applies a dynamic panel model to explore whether the low‐income countries ‘catch up’ with the rich ones by examining the threshold effects of per capita income on the convergence behavior of growth rates. Empirical evidence from 121 Penn World Table economies and 48 US states indicates that income levels have substantial impacts on the convergence behavior. First, convergence is insignificantly found in the lowest‐income regimes, which is interpreted that these poor countries persist at their income levels, which cause possible income barriers‐to‐growth. That is, the poor countries may not be able to catch up with the rich ones easily, unless an income threshold is overcome. Second, convergence is significantly found beyond the lowest‐income regime, implying that the low‐income countries catch up with the rich. We conclude that when a certain income threshold is overcome, the poor countries catch up with the rich ones; hence a subsidiary income policy can be helpful.