Real convergence in Latin America: a fractionally integrated approach

Abstract

This letter investigates the real convergence of 17 Latin American countries to the US economy for the period 1950 to 2008. We examine the order of integration of real Gross Domestic Product (GDP) per capita differences between the US and each Latin American country. We allow for fractional degrees of differentiation. This approach provides a test for stochastic convergence, which is a necessary condition for real convergence. The results show no evidence of stochastic convergence with respect to the US economy in any of the countries under study.

Keywords:

• real convergence
• beta convergence
• fractional integration
• mean reversion

JEL Classification::

• C22
• E19

Acknowledgements

Luis A. Gil-Alana gratefully acknowledges financial support from the Ministerio de Economia y Competitividad through the Grant No. ECO2011-28196.

Notes

¹ Definitions of stochastic and β-convergence are provided in Section III.

² See De Gregorio (1999), Ferreira (2000), Dobson and Ramlogan (2002), Holmes (2006), Serra et al. (2006) and Galvão and Gomes (2007).

³ Avaliable at: http://www.conference-board.org/data/economydatabase/ (accessed 2 February 2012).

⁴ See Gil-Alana and Hualde (2009) for a recent review of fractional integration in macroeconomic time series.

⁵ See Carlino and Mills (1993), Tomljanovich and Vogelsang (2002) and Nieswiadomy and Strazicich (2004).