Testing Convergence: A Panel Data Approach

This paper briefly presents new empirical tests of the convergence hypothesis based on panel data. We apply a modified 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 convergence. In the conditional convergence context, we are particularly concerned with the information included in individual effects. We find evidence supporting the existence of an absolute and common convergence 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-specific speeds. For our World sample (86 countries) there is no convergence process at all. For OECD countries, a first study of fixed effects is proposed. It shows that only the private and public investment ratios are significantly linked to those unobservable structural disparities.