TESTING THE CONVERGENCE HYPOTHESIS IN SOLOW GROWTH MODEL: A STATISTICAL EVIDENCE FROM SAARC ECONOMIES

Abstract

The literature reveals three concepts of convergence, namely Absolute/Unconditional Beta (β) convergence, Sigma (σ) convergence, and Conditional Beta (β) convergence. Annual data of real GDP per capita over the period 1972-2012 of six SAARC countries has been utilized to test the convergence hypotheses. OLS estimates from the cross-sectional data revealed that there is no evidence of sigma (σ) convergence. A panel data approach has also been applied to test the convergence of real GDP per capita among six SAARC countries. Empirical results from both Levin, Lin, and Chu and the Hadri z-stat showed no evidence of convergence among the SAARC countries. Thus, the results of our study are not consistent with the basic growth model of Solow-Swan (1956) which posits the existence of conditional convergence of income among developed and developing economies.