Skip to content
Licensed Unlicensed Requires Authentication Published by De Gruyter March 3, 2015

Club convergence in Latin America

  • Victor Martin EMAIL logo and Guillermo Vazquez

Abstract

This paper assesses the convergence in per capita income of a group of 18 Latin American countries over the period 1950–2008. We employ a novel regression based convergence test proposed by (Phillips, P. C. B., and D. Sul. 2007. “Transition Modeling and Econometric Convergence Tests.” Econometrica 75: 1771–1855). Contrary to most previous studies, our approach allows us to examine for evidence of club convergence and enables to endogenously identify groups of countries that convergence to different equilibria. Our results support the existence of convergence clubs, indicating that Latin American countries form three separate groups within which income per capita dispersion is decreasing over time. Moreover, results from an ordered logit model suggest that differences in institutions quality among Latin America countries have played a crucial role in determining club membership.


Corresponding author: Victor Martin, Universidad Rey Juan Carlos – Economia Aplicada I, Paseo Artilleros s/n, Madrid 28032, Spain, e-mail:

Acknowledgment

Victor Martin acknowledges financial support from the Spanish Ministry of Economy and Competitiveness, HAR2013-40760_R.

Appendix

Table AI:

Key variables by country.

Population growthInvestmentHuman capitalInstitutions qualityManufacturingInfrastructure
Club 1
 Argentina1.5323.900.8957.5832.772.63
 Brazil2.9422.830.8166.7425.960.69
 Chile2.1728.683.1752.5627.051.25
 Colombia3.0218.921.7555.9621.320.55
 Costa Rica3.4114.052.8864.1421.780.83
 Dominican R.3.2112.061.7751.4218.770.33
 Ecuador3.0032.452.0157.2419.940.46
 Mexico3.2024.652.0665.3126.431.00
 Panama2.9222.084.5244.5411.940.84
 Paraguay2.6311.911.5049.7417.270.26
 Uruguay1.1318.943.7260.1522.923.08
 Venezuela3.6331.222.4965.8117.051.72
Club 2
 El Salvador3.3712.861.4032.3622.160.47
 Guatemala2.6016.471.0235.6714.930.39
 Honduras3.5118.041.1039.3912.980.42
 Peru2.8832.513.0839.8325.330.79
Club 3
 Bolivia2.3714.851.7440.7613.910.49
 Nicaragua3.2319.551.6639.0019.340.46

The institutions quality measure ranks between 0 and 100 points. A larger value indicates better institutions quality.

Table AII:

Political risk index by components, 1985–1990 average.

PRI-1

(12 pts)
PRI-2

(12 pts)
PRI-3

(12 pts)
PRI-4

(12 pts)
PRI-5

(12 pts)
PRI-6

(6 pts)
PRI-7

(6 pts)
PRI-8

(6 pts)
PRI-9

(6 pts)
PRI-10

(6 pts)
PRI-11

(6 pts)
PRI-12

(4 pts)
Club 15.485.065.198.198.943.023.334.833.085.173.591.72
 Argentina4.764.264.108.429.394.002.655.003.006.004.002.00
 Brazil5.635.265.769.0012.004.004.285.004.005.003.813.00
 Chile4.766.075.504.0810.073.001.114.004.005.002.962.00
 Colombia6.315.795.644.798.963.003.474.001.006.004.003.00
 Costa Rica6.364.725.019.006.045.006.005.004.006.005.002.00
 Dominican R.4.584.044.087.008.933.002.005.003.004.003.782.00
 Ecuador5.544.314.6510.927.133.003.694.004.004.004.002.00
 Mexico6.815.786.159.469.133.006.006.003.015.003.381.60
 Panama4.174.244.047.427.102.001.465.002.005.002.130.00
 Paraguay4.645.506.049.2210.000.181.155.002.005.001.000.00
 Uruguay5.835.475.718.0010.003.003.145.003.006.004.001.00
 Venezuela6.355.295.6111.008.563.005.005.004.005.005.002.00
Club 24.163.894.113.075.562.251.694.751.253.272.440.38
 El Salvador3.823.293.360.465.432.002.004.001.005.002.000.00
 Guatemala4.693.764.013.825.812.001.755.001.001.072.750.00
 Honduras4.314.815.045.002.742.001.005.002.005.002.000.50
 Peru3.833.714.013.008.253.002.035.001.002.003.001.00
Club 35.053.483.413.636.103.222.004.501.503.503.000.50
 Bolivia3.933.763.684.819.061.532.005.001.003.003.000.00
 Nicaragua6.173.193.142.443.154.902.004.002.004.003.001.00

PR-1, government stability; PR-2, socioeconomic conditions; PR-3, investment profile; PR-4, internal conflict; PR-5, external conflict; PR-6, corruption; PR-7, military in politics; PR-8, religion in politics; PR-9, law and order; PR-10, ethnic tensions; PR-11, democratic accountability; PR-12, bureaucracy quality.

Figure AI: Real GDP per capita in Latin America, 1950–2008.
Figure AI:

Real GDP per capita in Latin America, 1950–2008.

References

Ayala, A., J. Cunado, and L. A. Gil-Alana. 2013. “Real Convergence: Empirical Evidence for Latin America.” Applied Economics 45: 3220–3229.10.1080/00036846.2012.703317Search in Google Scholar

Baer, W. 1972. “Import Substitution and Industrialization in Latin America: Experiences and Interpretations.” Latin American Research Review 7: 95–122.10.1017/S0023879100041224Search in Google Scholar

Barrientos, P. A. 2010. Convergence Patterns in Latin America. Economics Working Papers 2010–15, School of Economics and Management, University of Aarhus.Search in Google Scholar

Barrientos, P. A. 2011. Convergence Clubs in Latin America: Historical Approach. Development Research Working Paper Series 01–2010, Institute for Advance Development Studies.Search in Google Scholar

Barro, R. J. 1991. “Economic Growth in a Cross Section of Countries.” The Quarterly Journal of Economics 106: 407–443.10.2307/2937943Search in Google Scholar

Barro, R. J., and X. Sala-i-Martin. 1991. “Convergence Across States and Regions.” Brookings Papers on Economic Activity 22: 107–182.10.2307/2534639Search in Google Scholar

Barro, R., and X. Sala-i-Martin. 1992. Economic Growth. New York: McGraw Hill.Search in Google Scholar

Bartkowska, M., and A. Riedl. 2012. “Regional Convergence Clubs in Europe: Identification and Conditioning Factors.” Economic Modelling 29: 22–31.10.1016/j.econmod.2011.01.013Search in Google Scholar

Baumol, W. J. 1986. “Productivity Growth, Convergence, and Welfare: What the Long-Run Data Show.” American Economic Review, American Economic Association 76: 1072–1085.Search in Google Scholar

Bernard, A., and S. N. Durlauf. 1995. “Convergence in International Output.” Journal of Applied Econometrics 10: 97–108.10.1002/jae.3950100202Search in Google Scholar

Blyde, J. 2006. “Latin American Clubs: Uncovering Patterns of Convergence.” MPRA Paper No. 21320.10.2139/ssrn.900124Search in Google Scholar

Camarero, M., J. Castillo, A. J. Picazo-Tadeo, and C. Tamarit. 2013a. “Eco-Efficiency and Convergence in OECD Countries.” Environmental and Resource Economics 55: 87–106.10.1007/s10640-012-9616-9Search in Google Scholar

Camarero, M., A. J. Picazo-Tadeo, and C. Tamarit. 2013b. “Are the Determinants of CO2 Emissions Converging among OECD Countries?.” Economics Letters 118: 159–162.10.1016/j.econlet.2012.10.009Search in Google Scholar

Carlino, G. A., and L. O. Mills. 1993. “Are US Regional Incomes Converging? A Time Series Analysis.” Journal of MonetaryEconomics 32: 335–346.Search in Google Scholar

Carlino, G. A., and L. Mills. 1996. “Testing Neoclassical Convergence in Regional Incomes and Earnings.” Regional Science and Urban Economics 26: 565–590.10.1016/S0166-0462(96)02137-0Search in Google Scholar

Cass, D. 1965. “Optimum Growth in an Aggregate Model of Capital Accumulation.” Review of Economic Studies 32: 233–240.10.2307/2295827Search in Google Scholar

De Ferranti, D., Perry, G.E., Ferreiro, F., and M. Walton. 2004. IInequality in Latin America: Breaking with History? Washington, DC: The World Bank.10.1596/0-8213-5665-8Search in Google Scholar

Dobson, S., and C. Ramlogan. 2002a. “Convergence and Divergence in Latin America, 1970–1998.” Applied Economics 34: 465–470.Search in Google Scholar

Dobson, S., and C. Ramlogan. 2002b. “Economic Growth and Convergence in Latin America.” Journal of Development Studies 38: 83–104.10.1080/00220380412331322591Search in Google Scholar

Edwards, S. 2007. The decline of Latin America. Chicago: The University of Chicago Press.Search in Google Scholar

Galor, O. 1996. “Convergence? Inferences from Theoretical Models.” Economic Journal 106: 1056–1069.10.2307/2235378Search in Google Scholar

Galvao, A. F., and F. A. Gomes. 2007. “Convergence or Divergence in Latin America? A Time Series Analysis.” Applied Economics 39: 1353–1360.10.1080/00036840600606278Search in Google Scholar

Hamit-Haggar, M. 2013. “A Note on Convergence Across Canadian Provinces: New Insights from the Club Clustering Algorithm.” The Annals of Regional Science 50: 591–601.10.1007/s00168-012-0500-xSearch in Google Scholar

Holmes, M. 2005. “New Evidence on long-Run Output Convergence among Latin American Countries.” Journal of Applied Economics 8: 299–319.10.1080/15140326.2005.12040630Search in Google Scholar

Holmes, M. 2006. “Regime-Dependent Output Convergence in Latin America.” Estudios de Economía 33: 65–81.Search in Google Scholar

Howitt, P., and D. Mayer-Foulkes. 2005. “R&D, Implementation and Stagnation: A Schumpeterian Theory of Convergence Clubs.” Journal of Money, Credit and Banking 37: 147–177.10.1353/mcb.2005.0006Search in Google Scholar

Koopmans, T. C. 1965. “On the Concept of Optimal Economic Growth.” The Economic Approach to Development Planning, Amsterdam: North-Holland.Search in Google Scholar

Mankiw, N. G., D. Romer, and D. N. Weil. 1992. “A Contribution to the Empirics of Economic Growth.” Quarterly Journal of Economics 107: 407–437.10.2307/2118477Search in Google Scholar

Martín, F. 2010. “América Latina, Convergencia o Divergencia?” Principios 16: 37–54.Search in Google Scholar

McKelvey, R. D., and W. Zavoina. 1975. “A Statistical Model for the Analysis of Ordinal Level Dependent Variables.” The Journal of Mathematical Sociology 4: 103–120.10.1080/0022250X.1975.9989847Search in Google Scholar

North, D. 1990. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.10.1017/CBO9780511808678Search in Google Scholar

Panopoulou, E., and T. Pantelidis. 2009. “Club Convergence in Carbon Dioxide Emissions.” Environmental & Resource Economics 44: 47–70.10.1007/s10640-008-9260-6Search in Google Scholar

Parente, S. L., and E. C. Prescott. 1994. “Barriers to Technology Adoption and Development.” Journal of Political Economy 102: 298–321.10.1086/261933Search in Google Scholar

Phillips, P. C. B., and D. Sul. 2006. Economic Transition and Growth. Mimeo: University of Auckland.Search in Google Scholar

Phillips, P. C. B., and D. Sul. 2007. “Transition Modeling and Econometric Convergence Tests.” Econometrica 75: 1771–1855.10.1111/j.1468-0262.2007.00811.xSearch in Google Scholar

Phillips, P. C. B., and D. Sul. 2009. “Economic Transition and Growth.” Journal of Applied Econometrics 24: 1153–1185.10.1002/jae.1080Search in Google Scholar

Quah, D. 1993a. “Galton’s Fallacy and Tests of the Convergence Hypothesis.” Scandinavian Journal of Economics 95: 427–443.10.2307/3440905Search in Google Scholar

Quah, D. 1993b. “Empirical Cross-Section Dynamics in Economic Growth.” European Economic Review 37: 426–434.10.1016/0014-2921(93)90031-5Search in Google Scholar

Sala-i-Martin, X. 1996. “The Classical Approach to Convergence Analysis.” Economic Journal 106: 1019–1036.10.2307/2235375Search in Google Scholar

Solow, R. M. 1956. “A Contribution to the Theory of Economic Growth.” Quarterly Journal of Economics 70: 65–94.10.2307/1884513Search in Google Scholar

Thorp, R. 1998. Progress, Poverty and Exclusion. An economic history of Latin America in the 20th century. Baltimore, Md.Search in Google Scholar

Published Online: 2015-3-3
Published in Print: 2015-7-1

©2015 by De Gruyter

Downloaded on 23.2.2024 from https://www.degruyter.com/document/doi/10.1515/bejm-2014-0109/html
Scroll to top button