Department of Economics and Business Economics

Olaf Posch

Measuring Convergence using Dynamic Equilibrium Models: Evidence from Chinese Provinces

Research output: Working paperResearch

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  • Rp12 26

    Submitted manuscript, 469 KB, PDF document

  • Lei Pan, Wageningen University, Netherlands
  • Olaf Posch
  • Michel van der Wel, Erasmus University Rotterdam and, Netherlands
We propose a model to study economic convergence in the tradition of neoclassical growth theory. We employ a novel stochastic set-up of the Solow (1956) model with shocks to both capital and labor. Our novel approach identifies the speed of convergence directly from estimating the parameters which determine equilibrium dynamics. The inference on the structural parameters is done using a maximum-likelihood approach. We estimate our model using growth and population data for China’s provinces from 1978 to 2010. We report heterogeneity in the speed of convergence both across provinces and time. The Eastern provinces show a higher tendency of convergence, while there is no evidence of convergence for the Central and Western provinces. We find empirical evidence that the speed of convergence decreases over time for most provinces.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages30
Publication statusPublished - 1 Jun 2012
SeriesCREATES Research Papers
Number2012-26

    Research areas

  • Economic convergence; Dynamic stochastic equilibrium models; Solow model; Structural estimation

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