Growth Convergence and Divergence in SAARC

Abstract

<em>We test for output convergence during 1960-2017 amongst the leading member countries of the South Asian Association for Regional Cooperation (SAARC): Bangladesh, India, Nepal, Pakistan and Sri Lanka. The context is SAARC’s commitment to eventual monetary union. Existing research, using established unit root tests, finds little support for the convergence hypothesis, even when structural breaks are permitted. We use two more recently developed approaches, both of which allow greater flexibility in the depiction of convergence. The method developed by Enders and Lee (2011) allows for a smoothly evolving trend in relative per capita incomes, rather than a (possibly breaking) linear trend. The technique introduced by Phillips and Sul (2007, 2009) allows for the possibility of convergent sub-groups. Even with these more accommodating test procedures, we find minimal evidence of growth convergence within the full group of countries. We find that these countries can be allocated to two non-overlapping convergence clubs, with India and Sri Lanka enjoying the more favourable growth path. These findings raise questions regarding the current feasibility of monetary union for SAARC.</em>

The drivers of economic growth in South Asia: evidence from a dynamic system GMM approach

“…Similarly, this corroborates Arnold et al (2011) for 21 OECD countries, although their estimated speed of convergence appears non-compatible with the augmented Solow model. This is in line with Khan and Daly (2018), Safdar and Nawaz (2020), Simionescu (2017), and Lafuente et al (2020) for five SAARC countries, six SAARC economies, 28 EU countries, and 26 EU countries, respectively. However, such a conclusion differs from Azomahou et al (2011) as their parametric and semi-parametric estimations conducted on 157 regions of EU countries led to contrasting results.…”

Income Convergence in Presence of Liberalization Measures, Governance and Technology Adoption

“…The "Asian Least Developed Countries", and the "SAARC countries" show positive but significant income divergence. The results may get support from the outcome of (Khan & Daly, 2018) and from the EBRD report 14 of 2012 that regional economic integration is encountered with numerous challenges while it minimizes adverse effects on economic relations with outer world. In case of observed divergence of per-capita income in "SAARC countries" and "Asian Least Developed" countries, it is noted that FPC & FPE individually focus on factor prices only.…”

“…A large body of literature discusses the development of convergence and trade theories (Ben-David, 1996;Slaughter, 1997Slaughter, , 2001. Some studies that discussed the issue in this context are: (Choi, 2004(Choi, , 2009Cyrus, 2004;Darku & Yeboah, 2018;Hakro & Fida, 2009;Rassekh, 2004;Stroomer & Giles, 2008),and (Khan & Daly, 2018). This is more attainable through imports and exports and may become a reason for an increase in economic growth (Frankel, Romer, & Cyrus, 1996;Grossman & Helpman, 1991).Further to this (Hsiao & Hsiao, 2006) examined eight rapidly developing Asian economies and tried to develop a link among GDP, exports, and FDI.…”

Exploring the Presence of Balanced Growth: Empirical Evidence from Denmark

“…Despite the large volume of research in this field, limited evidence on the validity of neoclassical growth theory in terms of testing the output per capita convergence (Khan and Daly, 2018) in leading European economies ignoring balanced growth hypothesis. This study will address these two gaps by extending the work of "King et al, (1991).…”

“…Some recent developments in the area of BGH investigations have reported different results for countries like China, Turkey and SAARC region countries (Li, et al, 1998;Li andDaly, 2009: Attifield andTemple, 2010;Khan, 2014: Khan &Daly, 2018.…”