STOCHASTIC CONVERGENCE OF INCOME IN TURKIYE: A METHODOLOGICAL REINVESTIGATION OF PROVINCES

Year 2024, Volume: 8 Issue: 2, 166 - 190, 29.10.2024

Altan Bozdoğan

Abstract

This study revisits income convergence among Turkish provinces for 1992-2019 and differs from most empirical literature due to its unique structural and methodological framework. Stochastic convergence is tested by employing a battery of panel stationarity tests that allow cross-sectional dependence and structural breaks. Breaks are further analyzed with respect to the nature of breaks as sharp and smooth. Sharp breaks are identified endogenously, while smooth breaks are accounted for using the Fournier approximation. Although σ-convergence is detected, there are no shreds of evidence of stochastic convergence at the panel level. Univariate test statistics demonstrate that at the provincial level, there is no single case that applies to all provinces. As additional dimensions of the data-generating process are evaluated in the testing procedure, outcomes about stochastic convergence slightly shift for provinces. However, findings at the panel level remain consistent and do not produce stochastic convergence. At the provincial level, mixed results are obtained.

Keywords

Stochastic Convergence, Fourier Approximation, Panel Unit Root, Regional Economics, Stationarity

References

• Akkay, R. C. (2022). Income Convergence Among Turkish Provinces: An Income Inequality Approach. Ekonomi Politika ve Finans Araştırmaları Dergisi, 7(2), 274-300.
• Aksoy, T., Taştan, H., & Kama, Ö. (2019). Revisiting income convergence in Turkey: Are there convergence clubs?. Growth and Change, 50(3), 1185-1217.
• Aldan, A., & Gaygısız, E. (2006). Convergence Across Provinces of Turkey: A Spatial Analysis. Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
• Aslan, A., & Kula, F. (2011). Is there really divergence across Turkish provinces? Evidence from the lagrange multiplier unit root tests. European Planning Studies, 19(3), 539-549.
• Bakış, O. (2018). Yeni GSYH Serilerinin Getirdiği Farklılıklar ve Sorunlar. Marmara İktisat Dergisi, 2(1), 15-42.
• Bai, J., & Ng, S. (2005). A new look at panel testing of stationarity and the PPP hypothesis (pp. 426-450). Cambridge, UK: Cambridge University Press.
• Bailey, N., Kapetanios, G., & Pesaran, M. H. (2016). Exponent of cross‐sectional dependence: Estimation and inference. Journal of Applied Econometrics, 31(6), 929-960.
• Barro, R. J. (1991). Economic growth in a cross section of countries. The quarterly journal of economics, 106(2), 407-443.
• Barro, R. J. (1996). Determinants of economic growth: A cross-country empirical study.
• Barro, R. J., & Sala-i-Martin, X. (1992). Convergence. Journal of political Economy, 100(2), 223-251.
• Becker, R., Enders, W., & Lee, J. (2006). A stationarity test in the presence of an unknown number of smooth breaks. Journal of Time Series Analysis, 27(3), 381-409.
• Becker, R., Enders, W., & Hurn, S. (2004). A general test for time dependence in parameters. Journal of Applied Econometrics, 19(7), 899-906.
• Bernard, A. B., & Durlauf, S. N. (1995). Convergence in international output. Journal of applied econometrics, 10(2), 97-108.
• Bernard, A. B., & Durlauf, S. N. (1996). Interpreting tests of the convergence hypothesis. Journal of econometrics, 71(1-2), 161-173.
• Bolkol, H. K. (2019). Analysis of Regional Income Convergence in Turkey. International Journal of Research in Business and Social Science, 8(2), 1-28.
• Bolkol, H. K. (2023). Regional income convergence in Turkey: An empirical analysis from an endogenous growth perspective. Panoeconomicus, 70(1), 127-153.
• Boyle, G. E., & McCarthy, T. G. (1997). A simple measure of β‐convergence. Oxford Bulletin of Economics and Statistics, 59(2), 257-264.
• Carlino, G. A., & Mills, L. O. (1993). Are US regional incomes converging?: A time series analysis. Journal of monetary economics, 32(2), 335-346.
• Carrion-i-Silvestre, J. L., del Barrio-Castro, T., & Lopez-Bazo, E. (2005). Breaking the panels: an application to the GDP per capita. The Econometrics Journal, 159-175.
• Carrion-i-Silvestre, J. L., & German-Soto, V. (2009). Panel data stochastic convergence analysis of the Mexican regions. Empirical Economics, 37(2), 303-327.
• Caselli, F., Esquivel, G., & Lefort, F. (1996). Reopening the convergence debate: a new look at cross-country growth empirics. Journal of economic growth, 1, 363-389.
• Chen, X., & Nordhaus, W. D. (2011). Using luminosity data as a proxy for economic statistics. Proceedings of the National Academy of Sciences, 108(21), 8589-8594.
• Costantini, M., & Arbia, G. (2006). Testing the stochastic convergence of Italian regions using panel data. Applied Economics Letters, 13(12), 775-783.
• Cunado, J., & De Gracia, F. P. (2006). Real convergence in Africa in the second-half of the 20th century. Journal of Economics and Business, 58(2), 153-167.
• De Hoyos, R. E., & Sarafidis, V. (2006). Testing for cross-sectional dependence in panel-data models. The stata journal, 6(4), 482-496.
• DeJuan, J., & Tomljanovich, M. (2005). Income convergence across Canadian provinces in the 20th century: Almost but not quite there. The Annals of Regional Science, 39, 567-592.
• Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366a), 427-431.
• Ditzen, J. (2021). Estimating long-run effects and the exponent of cross-sectional dependence: An update to xtdcce2. The Stata Journal, 21(3), 687-707.
• Doğruel, F., & Doğruel, A. S. (2003). Türkiye’de bölgesel gelir farklılıkları ve büyüme. Köse, AH, Şenses, F ve Yeldan, E.(der.) İktisat Üzerine Yazılar I: Küresel Düzen, Birikim, Devlet ve Sınıflar, Korkut Boratav’a Armağan içinde, 287-318.
• Dowrick, S., & Nguyen, D. T. (1989). OECD comparative economic growth 1950-85: catch-up and convergence. The american economic Review, 1010-1030.
• Durlauf, S. N., Johnson, P. A., & Temple, J. R. (2005). Growth Econometrics. Handbook of Economic Growth, 1, 555-677.
• Durusu-Çiftçi, D., & Nazlıoğlu, Ş. (2019). Does income converge in Turkey? An empirical assessment. Ege Academic Review, 19(1), 15-32.
• Düşündere, A. T; (2019). 1992-2018 Dönemi için Gece Işıklarıyla İl Bazında GSYH Tahmini: 2018’de 81 İlin Büyüme Performansı. Review note. TEPAV.
• Düşündere, A. T; (2020). Gece Işıklarıyla İl Bazında GSYH Tahmini: 2019’da 81 İlin Kişi Başı Geliri. Review note. TEPAV.
• Enders, W., & Lee, J. (2004, June). Testing for a unit root with a nonlinear Fourier function. In Econometric Society 2004 Far Eastern Meetings (Vol. 457, pp. 1-47).
• Erlat, H., & Özkan, P. (2006). Absolute convergence of the regions and provinces of Turkey. Topics in middle Eastern and North African Economies, 8.
• Evans, P. (1998). Using panel data to evaluate growth theories. International Economic Review, 295-306.
• Evans, P., & Karras, G. (1996). Convergence revisited. Journal of monetary economics, 37(2), 249-265.
• Filiztekin, A. (2018). Convergence across industries and provinces in Turkey. Ekonomi-tek, 7(3), 1-32.
• Ford, G. S., Jackson, J. D., & Kline, A. D. (2006). Misleading inferences from panel unit root tests: a comment. Review of International Economics, 14(3), 508-511.
• Friedman, M. (1992). Do old fallacies ever die?. Journal of economic literature, 30, 2129-2132.
• Galor, O. (1996). Convergence? Inferences from theoretical models. The economic journal, 106(437), 1056- 1069.
• Gezici, F., & Hewings, G. J. (2004). Regional convergence and the economic performance of peripheral areas in Turkey. Review of Urban & Regional Development Studies, 16(2), 113-132.
• Gömleksiz, M., Şahbaz, A., & Mercan, B. (2017). Regional economic convergence in Turkey: Does the government really matter for?. Economies, 5(3), 27.
• Islam, N. (1995). Growth empirics: a panel data approach. The quarterly journal of economics, 110(4), 1127- 1170.
• Islam, N. (2003). What have we learnt from the convergence debate?. Journal of economic surveys, 17(3), 309-362.
• Karaca, O. (2004). Türkiye’de bölgelerarası gelir farklılıkları: Yakınsama var mı? (No. 2004/7). Discussion Paper. Ankara: Turkish Economic Association.
• Karahasan, B. C. (2017). Distributional Dynamics of regional incomes in Turkey: 1987-2014. Marmara İktisat Dergisi, 1(1), 95-107.
• Karahasan, B. C. (2020). Can neighbor regions shape club convergence? Spatial Markov chain analysis for Turkey. Letters in Spatial and Resource Sciences, 13(2), 117-131.
• King, A., & Ramlogan-Dobson, C. (2014). Are income differences within the OECD diminishing? Evidence from Fourier unit root tests. Studies in Nonlinear Dynamics & Econometrics, 18(2), 185-199.
• Kwiatkowski, D., Phillips, P. C., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root?. Journal of econometrics, 54(1-3), 159-178.
• Hadri, K. (2000). Testing for stationarity in heterogeneous panel data. The Econometrics Journal, 3(2), 148- 161.
• Hadri, K., & Kurozumi, E. (2011). A locally optimal test for no unit root in cross-sectionally dependent panel data. Hitotsubashi Journal of Economics, 52(2),165-184.
• Hadri, K., & Kurozumi, E. (2012). A simple panel stationarity test in the presence of serial correlation and a common factor. Economics Letters, 115(1), 31-34.
• Henderson, J. V., Storeygard, A., & Weil, D. N. (2012). Measuring economic growth from outer space. American economic review, 102(2), 994-1028.
• Lee, K., Pesaran, M. H., & Smith, R. (1997). Growth and convergence in a multi‐country empirical stochastic Solow model. Journal of applied Econometrics, 12(4), 357-392.
• Lee, C., Wu, J. L., & Yang, L. (2016). A Simple panel unit‐root test with smooth breaks in the presence of a multifactor error structure. Oxford Bulletin of Economics and Statistics, 78(3), 365-393.
• Li, Q., & Papell, D. (1999). Convergence of international output time series evidence for 16 OECD countries. International review of economics & finance, 8(3), 267-280.
• Lucas Jr, R. E. (1988). On the mechanics of economic development. Journal of monetary economics, 22(1), 3-42.
• Maddala, G. S. (1999). On the use of panel data methods with cross-country data. Annales d’Economie et de Statistique, 429-448.
• Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and statistics, 61(S1), 631-652.
• Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A contribution to the empirics of economic growth. The quarterly journal of economics, 107(2), 407-437.
• Misra, B. S., Kar, M., Nazlioglu, S., & Karul, C. (2024). Income convergence of Indian states in the post- reform period: evidence from panel stationarity tests with smooth structural breaks. Journal of the Asia Pacific Economy, 29(1), 424-441.
• Moscone, F., & Tosetti, E. (2009). A review and comparison of tests of cross‐section independence in panels. Journal of Economic Surveys, 23(3), 528-561.
• Nazlioglu, S., & Karul, C. (2017). A panel stationarity test with gradual structural shifts: Re-investigate the international commodity price shocks. Economic Modelling, 61, 181-192.
• Oxley, L., & Greasley, D. (1995). A Time‐series perspective on convergence: Australia, UK and USA since 1870. Economic Record, 71(3), 259-270.
• Önder, A. Ö., Deliktaş, E., & Karadağ, M. (2010). The impact of public capital stock on regional convergence in Turkey. European Planning Studies, 18(7), 1041-1055.
• Quah, D. (1992). International patterns of growth: II. Persistence, path dependence, and sustained take-off in growth transition. Working Paper, Economics Department, LSE.
• Quah, D. (1993a). Empirical cross-section dynamics in economic growth. European Economic Review, 37, 426-434.
• Quah, D. (1993b). Galton’s fallacy and tests of the convergence hypothesis. The Scandinavian Journal of Economics, 427-443.
• Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica: journal of the Econometric Society, 1361-1401.
• Pesaran, M.H. (2004), “General Diagnostic Tests for Cross Section Dependence in Panels”, CESifo Working Paper Series No. 1229 ; IZA Discussion Paper No. 1240. Available at SSRN: http://ssrn.com/ abstract=572504
• Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross‐section dependence. Journal of applied econometrics, 22(2), 265-312.
• Pesaran, M. H. (2015). Testing weak cross-sectional dependence in large panels. Econometric reviews, 34(6- 10), 1089-1117.
• Pesaran, M. H. (2021). General diagnostic tests for cross-sectional dependence in panels. Empirical economics, 60(1), 13-50.
• Pesaran, M. H., & Xie, Y. (2021). A bias-corrected CD test for error cross-sectional dependence in panel data models with latent factors. arXiv preprint arXiv:2109.00408.
• Romer, P. M. (1986). Increasing returns and long-run growth. Journal of political economy, 94(5), 1002-1037.
• Sakarya, B., Baran, V., & İpek, M. (2024). TÜRKİYE’DE İLLER ARASINDA GELİR FARKLILIKLARI: KULÜP YAKINSAMA ANALİZİ. Bölgesel Kalkınma Dergisi, 2(01), 9-27.
• Smith, R. P., & Fuertes, A. M. (2010). Panel time series. Mimeo, April, Centre for Microdata Methods and Practice (cemmap).
• Solow, R. M. (1956). A contribution to the theory of economic growth. The quarterly journal of economics, 70(1), 65-94.
• Sul, D., Phillips, P. C., & Choi, C. Y. (2005). Prewhitening bias in HAC estimation. Oxford Bulletin of Economics and Statistics, 67(4), 517-546.
• Stengos, T., & Yazgan, M. E. (2014). Persistence in convergence. Macroeconomic Dynamics, 18(4), 753-782.
• Strazicich, M. C., Lee, J., & Day, E. (2004). Are incomes converging among OECD countries? Time series evidence with two structural breaks. Journal of Macroeconomics, 26(1), 131-145.
• Tansel, A., & Gungor, N. D. (1999, March). Economic Growth and Convergence An Application to the Provinces of Turkey, 1975-1995. In Economic Research Forum Working Papers (No. 9908).
• Temple, J. (1999). The new growth evidence. Journal of economic Literature, 37(1), 112-156.
• Tomljanovich, M., & Vogelsang, T. J. (2002). Are US regions converging? Using new econometric methods to examine old issues. Empirical Economics, 27, 49-62.
• Tsong, C. C., Lee, C. F., Tsai, L. J., & Hu, T. C. (2016). The Fourier approximation and testing for the null of cointegration. Empirical Economics, 51, 1085-1113.