GME Estimation with Non-Linearities and Spatial Dependence in Club Convergence Analysis

This paper assesses the existence of club convergence across countries by developing a two stage strategy, which employs information on clustering schemes - identified by a mapping analysis - and estimates a multiple-club spatial convergence model with non linearities and spatial dependence. Because of identification and collinearity problems, we introduce an entropy-based estimation procedure which simultaneously takes account of ill-posed and ill-conditioned inference problems. At the first stage, unobserved total factor productivity differentials across countries are identified by specifying a mapping structure in a convergence model with non linearities and spatial dependence. At the second step of the analysis, we estimate a multiple-club spatial convergence model, where clubs correspond to subsets of total observations, as identified at the first stage of the analysis. Finally, we examine whether OECD countries display club convergence over the period 1965-2004.