CONVERGENCE OF THE G-7: A COINTEGRATION APPROACH

Income convergence among the G-7 countries was demonstrated using Theil's inequality (entropy) index. G-7 convergence was also found for three potential factors of influence on economic growth: government expenditure, investment expenditure, and industrial employment. Pairwise cointegration tests indicated that income inequality was cointegrated with the other three inequality measures for the time period of 1950-88. Finally, Johansen's I(2) multi-cointegration tests indicated that three of the four inequality measures (i.e. income, investment expenditure, and industrial employment) were cointegrated suggesting that there exists a long-run equilibrium between the inequality in income, investment expenditure, and industrial employment