Club convergence in Latin America

Abstract

This paper assesses the convergence in per capita income of a group of 18 Latin American countries over the period 1950–2008. We employ a novel regression based convergence test proposed by (Phillips, P. C. B., and D. Sul. 2007. “Transition Modeling and Econometric Convergence Tests.” Econometrica 75: 1771–1855). Contrary to most previous studies, our approach allows us to examine for evidence of club convergence and enables to endogenously identify groups of countries that convergence to different equilibria. Our results support the existence of convergence clubs, indicating that Latin American countries form three separate groups within which income per capita dispersion is decreasing over time. Moreover, results from an ordered logit model suggest that differences in institutions quality among Latin America countries have played a crucial role in determining club membership