Testing Convergence: A Panel Data Approach

This paper brie‡y presents new empirical tests of the convergence hypothesis based on panel data. We apply a modi…ed Evans and Karras (1996) testing procedure to three samples (Europe, OECD and World). We propose a nested tests procedure to characterize various convergence processes: absolute or conditional, with or without a common speed of conver-gence. In the conditional convergence context, we are particularly concerned with the information included in individual e¤ects. We …nd evidence supporting the existence of an absolute and common con-vergence process for per capita GDP in the European Union sample (1960-1990). As concerns the OECD sample, structural disparities imply only a conditional convergence process occurring at country-speci…c speeds. For our World sample (86 countries) there is no convergence process at all. For OECD countries, a …rst study of …xed e¤ects is proposed. It shows that only the private and public investment ratios are signi…cantly linked to those unobservable structural disparities