Income Convergence Across Asian Economies: An Empirical Exploration

ABSTRACT

This article investigates the growth and regional disparity scenario that the Asian economies have been facing in the contemporary period. It attempts to investigate whether or not there exists income convergence across Asian economies over the period of 1990 to 2017 and also identifies the potential determinants. It empirically investigates the role of per capita income levels for the Asian countries with the help of β-convergence, σ-convergence and club convergence estimation methods. Using a panel data framework, this article investigates the possible determinants of the conditional convergence by undertaking the problem of endogeneity through different econometric models. The results confirm that the income gap among the countries appears to decline over time and there is a possibility of having unconditional convergence in the long run. The analysis supports the view of trade liberalization and recommends investing in the human capital and infrastructure to narrow down the regional disparity in Asia.

KEYWORDS:

• Convergence
• divergence
• income
• trade
• Asia

Disclosure of Statement

Conflict of interest was reported by the author(s).

Notes

1. See, De (2006), Kanbur et al. (2014), Jain-Chandra et al. (2016), De and Halder (2016).

2. This has the advantage of smoothing business-cycle fluctuations by making the data less prone to serial correlation than the yearly data used.

3. We could not take Afghanistan, Maldives in South Asia and Cambodia in Southeast Asia due to data unavailability during time frame.

4. We exclude the Global Financial Crisis (GFC) years, in particular 2008.

5. GLS takes account of cross-sectional heteroskedasticity and time-wise autocorrelation. Use of country dummy variables permits differences in individual economies’ production functions to enter the model.

6. An F-test confirms that the country dummy variables are highly statistically significant, indicating that country-specific effects are indeed important in accounting for convergence.