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Reopening the Convergence Debate when Sharp Breaks and Smooth Shifts Wed, 1870-2010

Author

Listed:
  • Omid Ranjbar

    (Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran.)

  • Tsangyao Chang

    (Department of Finance, Feng Chia University, Taichung, Taiwan.)

  • Chien-Chiang Lee

    (Department of Finance, National Su Yat-sen University, Kaohsiung, Taiwan)

  • Zahra (Mila) Elmi

    (Faculty of Economics, University of Mazandaran, Babolsar, Iran.)

Abstract

This paper attempts to re-investigate the catching-up (stochastic convergence) hypothesis among the selected 16 OECD countries applying the time series approach of convergence hypothesis with annual data over one century. To reach this aim, we propose a model which specifies a trend function, incorporating both types of structural breaks – that is, sharp breaks and smooth shifts using dummy variables and Fourier function respectively. In order to detect the sharp breaks, we apply the multiple structural break models (Bai & Perron, 1998) and the Fourier function proposed in Becker et al. (2004) to capture the smooth shifts. Our results show that most divergence process occurred over World War I (WWI) and World War II (WWII). Among the 69 estimated break points occurred over the period 1870-2010, 75 % of those break points result in catching-up and the remainder results in divergence.

Suggested Citation

  • Omid Ranjbar & Tsangyao Chang & Chien-Chiang Lee & Zahra (Mila) Elmi, 2016. "Reopening the Convergence Debate when Sharp Breaks and Smooth Shifts Wed, 1870-2010," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(3), pages 356-377, Summer.
    • Handle: RePEc:eut:journl:v:20:y:2016:i:3:p:356
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    References listed on IDEAS

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