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index.Rmd
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---
title: "Productivity Differences and Convergence Clubs in Latin America"
subtitle:
author: "Carlos Mendez<br />https://carlos-mendez.rbind.io<br /><br />Associate Professor<br />Graduate School of International Development<br />Nagoya University<br />JAPAN"
date: "Prepared for the 2019 International Joint Conference of JAHSS・JASID <br /><br />[ Slides and paper available at: http://bit.ly/jasid2019n ]"
output:
xaringan::moon_reader:
css: ["default", "metropolis-fonts", "svm-xaringan-style.css"]
lib_dir: libs
nature:
highlightStyle: github
highlightLines: true
countIncrementalSlides: false
---
```{r setup, include=FALSE}
options(htmltools.dir.version = FALSE)
```
## Motivation:
- Economic convergence is important for regional cohesion and competitiveness
- Inconclusive literature about Latin America: Convergence vs Divergence vs Convergence Clubs (Galvao and Reis-Gomes, 2007; Barrios et. al, 2018; Martin and Vazquez, 2015)
- Development potential of Latin America constrained by low productivity (Daude and Fernndez-Arias, 2010; Pages 2010; Restuccia, 2013)
## Research Objective:
- (Re)evaluate the convergence hypothesis across economies in Latin America with particular emphasis on productivity differences and the formation of multiple convergence clubs.
## Methods:
- Nonlinear dynamic factor model (Phillips and Sul, 2007, 2009)
- Clustering algorithm for panel data (Phillips and Sul, 2007, 2009)
## Data:
- Labor productivity and total factor productivity (Fernandez-Arias, 2017)
- 20 Latin American countries over the 1980-2014 period
---
class: middle
## Main Results:
1. **Lack of overall(global) convergence** in both labor productivity and total factor productivity
2. **Multiple local convergence clubs:** above and below the average
3. **Convergence clubs characteristics:**
- Labor productivity: **Four clubs** of countries
- Total factor productivity: **Three clubs** of countries
- Clubs show non-parallel trends: crossings, limited stability, and separating trends
- The lowest-productivity club (Honduras and Nicaragua) is diverging from the rest **at the highest speed**.
---
class: middle
# Outline of this presentation
1. Some stylized facts
- Productivity across countries and over time
- Heterogeneity across countries and over time
2. Convergence framework
- Global convergence test (intuition)
- Local convergence clubs (intuition)
3. Main results of the paper
- Lack of overall convergence
- Multiple convergence clubs above and bellow the average
- Convergence clubs characteristics
<br />
<br />
[ Slides and paper available at: http://bit.ly/jasid2019n ]
---
class: center, middle
# (1) Some stylized facts
**Productivity heterogeneity across Latin America**
Labor productivity
Total factor productivity
---
class: middle,center
## Large and heterogeneous productivity differences across Latin America
![](figs/fig00a.png)
Note: Labor productivity is computed as the long-run trend of (log) GDP per worker. The Hodrick-Prescott filter with a smoothing parameter of 6.25 is applied to obtain the long-run trends.
---
class: middle,center
## Large and heterogeneous productivity differences across Latin America
![](figs/fig00b.png)
Note: Total factor productivity is computed by dividing GDP per worker by an aggregate index of physical capital and human capital. The Hodrick-Prescott filter with a smoothing parameter of 6.25 is applied to obtain the long-run trends.
---
class: middle,center
## Are there any signs of overall convergence/divergence or convergence clubs?
![](figs/fig01.jpg)
---
class: center, middle
# (2) Convergence framework
Global convergence test (intuition)
Local convergence clubs (intuition)
---
class: middle
# Convergence framework (brief overview)
- First, define a relative transition parameter, $h_{it}$, as
$$h_{it}=\frac{y_{it}}{\frac{1}{N}\sum_{i=1}^{N}y_{it}}$$
- Second, the convergence hypothesis is defined as
$$H_{t}=\frac{1}{N}\sum_{i=1}^{N}\left(h_{it}-1\right)^{2}\rightarrow 0$$
In other words, when the relative transition parameter converges to unity, $h_{it}\rightarrow1$, the cross-sectional variance converges to zero, $H_{t}\rightarrow0$.
- Thrid, Phillips and Sul (2007) test this hypothesis by using the following log t regression model
$$log\left(\frac{H_{1}}{H_{t}} \right)-2log\left\{ log\left(t\right)\right\} = a+b\:log\left(t\right)+\epsilon_{t}$$
---
class: middle, center
# Convergence test (intuition)
![](figs/convergence-test.jpg)
---
class: middle, center
# Convergence clubs (intuition)
![](figs/convergence-clubs.jpg)
---
class: middle, center
# (3) Main results
Lack of overall convergence
Multiple convergence clubs above and below the average
Convergence clubs characteristics
---
class: middle, center
## Lack of overall convergence
![](figs/tab01.jpg)
---
class: middle, center
## Multiple convergence clubs
![](figs/tab02-03.jpg)
---
class: middle, center
## Multiple convergence clubs: Above and below the average
![](figs/fig02.jpg)
---
class: middle, center
## Convergence clubs characteristics: Labor productivity
![](figs/fig03.jpg)
---
class: middle, center
## Convergence clubs characteristics: Total factor productivity
![](figs/fig04.jpg)
---
class: middle
# Concluding Remarks
- Reject the (overall) convergence hypothesis both in terms of labor productivity and total factor productivity
- Multiple convergence clubs below and above the mean
- The clubs show different convergence speeds and separating tendencies.
-The poor economic performance of Honduras and Nicaragua is driving the separation of clubs over time.
## Implications and further research
- Convergence clubs may help us identify economies facing similar challenges
- Call for better coordination and cooperation policies both within and between clubs
- International technology transfer initiatives to improve economic cohesion and competitiveness in Latin America.
- Masked behind the low productivity of Latin America, there is still a high degree of heterogeneity that is worth exploring
- Next extension: (Re)evaluate the composition of convergence clubs using subnational data, which is to be constructed using satellite nightlight data.
---
class: center, middle
# Thank you very much for your attention
https://carlos-mendez.rbind.io
Slides and working paper available at: http://bit.ly/jasid2019n
![](figs/QuaRCS-lab-logo2.png)
**Quantitative Regional and Computational Science lab**
https://quarcs-lab.rbind.io
***
This research project was supported by JSPS KAKENHI Grant Number 19K13669