Testing for Stochastic and β-Convergence in Latin American Countries

Abstract

This paper tests for convergence using time series data from nineteen Latin American countries over the period 1945-2000 with two existing notions of convergence and with a herein proposed testable definition of β-convergence. The results show that only one pair of countries, Dominican Republic and Paraguay, were found to pair wise converge according to Bernard and Durlauf (1995) definition. Additionally, more evidence of stochastic convergence was found when allowing for structural breaks using the two-break minimum Lagrange Multiplier unit root test proposed by Lee and Strazicich (2003) than when no breaks were considered. Stochastic convergence within groups showed that there is more evidence of convergence within Central America and Caribbean economies than within South American economies. Only one country, Dominican Republic, was found to comply with the neoclassical growth models' conditions for income convergence, implying that the shocks to its real output per capita are temporary and that as relatively poor country is catching up with richer economies.

Keywords: Economic Growth, Convergence, Latin America, Time Series

JEL Classification: C22, C52, O40, O54