An analysis of conditional income convergence in selected OECD countries

The concept of convergence is fundamentally the similarity in economies of a bunch of countries towards same steady state or growth level. The focal point of this thesis is finding the evidence of Beta and Sigma convergence in order to verify whether there is conditional income convergence among OECD countries over the period of 2000 to 2017 or not? The concept of Beta convergence is divided between Absolut and conditional convergence. β-convergence occurs If poor economies tend to grow faster than rich ones; however, if the dispersion of real GDP per capita levels of economies tend to decrease gradually over time period then it displays presence of σ-convergence. This study applies Beta and sigma convergence econometric methodology to specify conditional convergence existence among 33 OECD member economies. According to this method cross-section dataset is required to estimate parameters of Beta and sigma to confirm conditional real income convergence among selected economies. Parameters of beta convergence is estimated by Least Square method (OLS). The trade openness is taken into account as control variable adding it to Beta convergence regression equation. The empirical results of employed models are attested before interpretation through statistical significance measurement of the econometric models such as F-test for the whole model and t-test for testing robustness of individual parameters of the model. The findings appear to indicate strong positive absolute or unconditional and conditional convergence among 33 OECD member economies for the period of 2000 to 2017. The models robustness is tested by econometric verification technics where they all emphasize on absence of Autocorrelation or serial correlation. The model is homoscedastic and residuals are normally distributed as well. Additionally, the result of Sigma convergence stipulates that GDP per capita dispersion has declined over the selected time period among OECD economies.