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Distortions in Cross-Sectional Convergence Analysis when the Aggregate Business Cycle is Incomplete

Author

Listed:
  • Stefano Magrini

    (Department of Economics, University Of Venice C� Foscari)

  • Margherita Gerolimetto

    (Department of Economics, University Of Venice C� Foscari)

  • Hasan Engin Duran

    (Department of Economics, University Of Venice C� Foscari)

Abstract

One of the most important drawbacks of the existing literature on convergence is that it largely ignores the effect of aggregate fluctuations on the evolution of income disparities. To the extent that regional income disparities follow a distinct cyclical pattern in the short-run, moving either pro- or counter-cyclically, the period of analysis should be chosen with great care. Failing to do so might in fact lead to an overestimation of the tendency towards either convergence or divergence, depending on the type of short-run cyclical pattern followed by the disparities and on which cycle phases are over-represented within the period being analyzed. In this paper, we use the distribution dynamics approach to show that the distortion introduced when the period of analysis contains incomplete business cycles could be quite sizeable and then analyze convergence among 48 conterminous US states over a appropriately chosen period (1989-2007) that includes only complete cycles.

Suggested Citation

  • Stefano Magrini & Margherita Gerolimetto & Hasan Engin Duran, 2011. "Distortions in Cross-Sectional Convergence Analysis when the Aggregate Business Cycle is Incomplete," Working Papers 2011_07, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2011_07
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    Cited by:

    1. Uwe Neumann & Rüdiger Budde & Christoph Ehlert, 2012. "Urban Economic Growth in Europe Between 2001 and 2008 – Gravitation or Dispersion?," Ruhr Economic Papers 0384, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. repec:zbw:rwirep:0384 is not listed on IDEAS
    3. Neumann, Uwe & Budde, Rüdiger & Ehlert, Christoph, 2012. "Urban Economic Growth in Europe Between 2001 and 2008 – Gravitation or Dispersion?," Ruhr Economic Papers 384, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

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    More about this item

    Keywords

    Convergence; Regional disparities; Business cycle; Distribution dynamics;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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