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Theoretical and Applied Economics
No. 12 / 2013 (589)

Does convergence of incomes still exist among developed economies? Time series evidence in G7 countries

Sakiru Adebola SOLARIN
Multimedia University Malaysia, Malaysia

Abstract. In this paper, we examine the presence of convergence of real per capita incomes in G7 countries for the period of 1870-2008, using the group average and pairwise approach. Lee and Strazicich (2003, 2004) unit root tests that provide for structural break(s) are utilised to verify incidence of stochastic convergence, a necessary condition for conditional convergence, while Carlino and Mills (1993) method is employed to confirm the existence of β-convergence, a sufficient requirement for conditional convergence. Among the possible 21 pairwise stochastic convergence cases, we observe nine pairwise stochastic convergence cases, with Japan as the only country not to have stochastic convergence with any of the G7 countries. Although Germany, France and the US stochastically converge towards the G7 average, only the US conditionally converges to the average of G7 countries.

Keywords: unit root tests; structural breaks; convergence; G7 countries.

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