Abstract
Cross-country output convergence is re-examined using a flexible concept of unit roots. While the presence of a constant unit root in output-differences implies nonconvergence, the presence of a stochastic unit root on the contrary implies convergence. Using the output-differences between the USA and the other 14 OECD countries, we find output divergence only for the USA/UK and USA/Sweden country-pairs.
Acknowledgements
Yau acknowledges the research support from the National Science Council of the Republic of China (NSC86-2415-H-030-005-T).
Notes
1 Exceptions include Cunado et al . (Citation2003), who allow fractional root in the output differences; Linden (Citation2002), who uses a nonlinear model. Nahar and Inder (Citation2002) also demonstrate that standard unit root test is inappropriate and propose a new methodology. They all find convergence of outputs between the USA and some OECD countries.