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Investigating the Convergence Hypothesis in the Eu: More Evidence Accounting for Structural Breaks

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EU Crisis and the Role of the Periphery

Part of the book series: Contributions to Economics ((CE))

Abstract

The aim of this paper is to test the convergence hypothesis for the EU countries with Netherlands which is considered as the benchmark. The empirical analysis uses Gross Domestic Product (GDP) per capita in Purchasing Power Parity (PPP) in constant prices of 2005 and covers the period 1950–2010. The empirical approach complementarily employs unit root tests for stochastic convergence and a test proposed by Tomljanovich and Vogelsang (Empirical Econ 27: 49–62, 2002) and Nieswiadomy and Strazicich (Econ Inq 42: 323–340, 2004) that is based on Carlino and Mills’ (J Monet Econ 32: 335–346, 1993) methodology. Applying the unit root tests for the relative per capita real GDP series for each country, we are able to reject the unit root hypothesis for 6 out of 14 countries. However, our results suggest there is stronger evidence in favor of convergence when we account for one or two endogenous structural breaks in the intercept and slope of the trend function. Based on Carlino and Mills methodology, we found strong evidence of a catch-up process until the mid-1980 towards the Netherlands for all countries except for the UK, although, after 1985, it is clear that the economies show different behavior which is probably associated with differences in the growth process.

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Notes

  1. 1.

    Lumsdaine and Papell (1997) extended the Zivot and Andrews (1992) model to accommodate two structural breaks.

  2. 2.

    Perron considered three break models as follows: The “crash” Model A allows for a one-time change in level; the “changing growth” Model B considers a sudden change in slope of the trend function; and Model C allows for change in level and trend. Model B is omitted from this study, as it is commonly held that most economies time series can be described adequately by Model A or C (Lee and Strazicich 1999).

  3. 3.

    According to Dawson and Sen (2007) two coefficients insignificantly different from zero indicate absolute convergence. Also, an intercept significantly different from zero with a trend that is not, implies steady state.

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Authors and Affiliations

  1. Aristotle University of Thessaloniki and Technological Educational Institute of Serres, Thessaloniki, Greece

    Xanthippi Chapsa

  2. Department of Economics, Aristotle University of Thessaloniki, 54124, Thessaloniki, Greece

    Constantinos Katrakilidis

  3. Department of Agricultural Development and Agribusiness Management, Technological Educational Institute of Thessaloniki, 57400, Thessaloniki, Greece

    Nikolaos Tabakis

Authors
  1. Xanthippi Chapsa
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  2. Constantinos Katrakilidis
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  3. Nikolaos Tabakis
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Correspondence to Xanthippi Chapsa .

Editor information

Editors and Affiliations

  1. Eastern Macedonia and Thrace Institute of Technology, Kavala, Greece

    Anastasios Karasavvoglou

  2. Istanbul University, Beyazit - Istanbul, Turkey

    Serdar Ongan

  3. Eastern Macedonia and Thrace Institute of Technology, Kavala, Greece

    Persefoni Polychronidou

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Chapsa, X., Katrakilidis, C., Tabakis, N. (2015). Investigating the Convergence Hypothesis in the Eu: More Evidence Accounting for Structural Breaks. In: Karasavvoglou, A., Ongan, S., Polychronidou, P. (eds) EU Crisis and the Role of the Periphery. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-10133-0_2

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