28 November 2012 1 455 Report

In the first step I have used absolute beta convergence models as specified below:

In[Y_( i, t+k)/Y_(i,t) ]= α+β.ln⁡(Y_(i.t) )+ε_it

Where In[Y_( i, t+k)/Y_(i,t) ] is the mean annualized growth rate of the variable Y in state i in the period (t, t+k), Y_(i.t) is the value in the initial time t and ε_it are corresponding residuals.

Then estimated speed of convergence as

The speed of convergence is computed as s = −1/T (ln (1+Tβ). Where s= speed of convergence and Tβ is the β-convergence in T period.

However, when beta value is larger this equation is not yielding any result. What does this indicate?

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