Output convergence across Asian countries

This study investigates the long-run convergence of per capita output across ten Asian countries over 1960–2014. To confirm the existence of output convergence toward leader countries in the region, several unit root testing methods are employed. Moreover, to determine possible growth factors responsible for setting Asian countries on a long-term steady-state growth path, the study uses some stationary covariates for the tests. In addition, the study allows for the presence of an endogenous structural change in the time series under investigation, to capture sharp drops in per capita outputs, which may be brought about by influential economic events such as serious economic slumps in domestic countries or the global financial crises in 1997–98 and 2008–09. The limiting distribution of the covariate unit root test which permits a structural break is also derived here. The results show significant evidence to support the convergence hypothesis. In particular, absolute convergence holds among Hong Kong, Korea, Singapore, and Taiwan. In addition, China and Malaysia show convergence tendencies in terms of growth rate toward Hong Kong. Certain potential growth factors, such as the trade/gross domestic product ratio, quality of human capital, total factor productivity level, and so on, may boost these countries in the long-run convergence process, in terms of output level or growth rate, to that observed for the leader countries in the region. We also find possibilities of catching-up with the leader countries in the case of Thailand, the Philippines, and India, provided they successfully utilize certain key factors toward developing their economies.