Pairwise Output Convergence in Selected Countries of East Asia and the Pacific: An Application of Stochastic Unit Root Test
Abstract

Abstract:

This paper examines time series cross-country output convergence in eleven counties of East Asia and the Pacific. Specifically, we model the cross-country output differences as a Stochastic Unit Root (STUR) processes. Using the output-differences between Japan (reference country) and the other ten sampled countries, we find output convergence only for the Japan-Australia, Japan-New Zealand, Japan-Taiwan and Japan-Thailand country-pairs. Alternatively, using the output-differences between Australia (reference country) and the other ten sampled countries, we fail to find any evidence of convergence in seven country pairs of the sampled countries except for Australia-Japan, Australia-Hong Kong and Australia-New Zealand country pairs. Overall, our results do not support output convergence in a broader perspective but support the notion of "club convergence" among a small subset (30-40 per cent) of similar fast-growing economies. The causes for non-convergence of per capita real GDP for a majority of country pairs are an empirical issue that involves country-specific factors that render output gaps highly persistent, but we can broadly outline a few reasons for non-convergence and these include, low and unequal economic growth, lack of economic and financial integration among the sampled countries.