Income Convergence in African Countries: Evidence from a Stationary Test With Multiple Structural Breaks

Abstract

This paper examines the catching‐up (stochastic convergence in real per capita income) hypothesis for 52 African countries with respect to the USA. over the 1969‐2011 period, using a highly flexible stationarity test. The empirical results show (i) that all African countries experienced at least one break, switching between catching‐up and divergence paths during the sample period; (ii) that structural breaks tend to coincide with political instability, trade liberalisation policies and terms of trade shocks; (iii) that among the 52 African countries studied, only five lie on the catching‐up path, while the remaining 47 diverge from the USA. Our results show that the economic performance of African countries fall far behind those of the USA and that the economic growth tragedy of Africa continues.

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“…Concerning macroeconomic parameters, the most commonly used techniques are the ADF test by Dickey and Fuller [ 74 ] and the PP test by Phillips and Perron [ 75 ]. They were used by Herwartz and Reimer [ 76 ] to reveal the relationship between interest rates and inflation across developing economies, by Chang et al [ 71 , 77 ] to investigate stationarity of GDP per capita in the OECD countries, by Ranjbar et al [ 78 ] and Su et al [ 79 ] to study income convergences in developing and least developed countries of Africa, and by Hoarau [ 80 ] to test the purchasing power parities for real exchange rates in Central America. In combination with the ADF and the PP tests, Aliyev et al [ 81 ], Humbatova et al [ 82 ], and Naseem et al [ 83 ], among others, used the KPSS (Kwiatkowski–Phillips–Schmidt–Shin) unit root method to enhance the robustness of the stationary test results.…”

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“…That is why this paper, steps in to provide a clearer picture concerning the convergence hypothesis by explicitly considering a more reliable methodological approach, robustness checks and an economic explanation regarding the determinants of converging or diverging patterns. Ranjbar et al (2014), in the case of African countries, examine stochastic convergence in real per capita income across 52 African countries, using a highly flexible stationarity test. Their findings illustrate that all African countries experience at least one break, switching between catching-up and divergence paths, while structural breaks are relevant to political instability, trade liberalization policies, and terms of trade shocks; moreover, only five of them lie on the convergence path.…”

“…Ranjbar et al (2014), in the case of African countries, examine stochastic convergence in real per capita income across 52 African countries, using a highly flexible stationarity test. Their findings illustrate that all African countries experience at least one break, switching between catching‐up and divergence paths, while structural breaks are relevant to political instability, trade liberalization policies, and terms of trade shocks; moreover, only five of them lie on the convergence path.…”

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“…Such convergence is consistent with the improvement in living standards and welfare of developing economies. Many studies treat per capita GDP as the measure of economic welfare or development, and hence a large literature has emerged to examine the convergence of per capita income across countries and regions (for instance, Guetat and Serranito, 2007;Ranjpour and Zahra, 2008;Cavenaile and Dubois, 2011;Ranjbar et al, 2014).…”