Convergence in international output: definitions, testing methodologies and empirical evidence

Abstract

The aim of the present research is to investigate whether there is convergence in per capita GDP among different countries in a global context. Special emphasis is laid on the 15 state members of E.U., after their effort for convergence, signing the Maastricht convention in 1992 and till 2004. We present some stylized facts and the prevalent definitions of convergence. Further, we present the various testing methodologies of convergence and we critically evaluate their empirical findings. We, then, propose a pair-wise approach to testing for output and growth convergence and present its conclusions. The investigation of the degree of convergence in real per capita output in selected group of countries was prompted by two reasons. First, evidence of no economic convergence within a region can bring about social and political instability as economic performance varies significantly across countries. Second, evidence of no convergence in unions such as European Union would imply that association agreements and other institutional linkages with respect to the particular union do not necessarily lead to economic convergence. Ultimately, if there is no automatic mechanism that ensures the convergence of economies over time, it is not only justified but also probably ethically necessary and “politically correct” to implement public policies aimed at helping the poorer (regions or countries) to catch-up as fast as possible with the richer. Knowing whether it is justified to dedicate public funds to these policies is therefore an important matter both for national and supra-national governments.