Real convergence using TAR panel unit root tests: an application to Southern African Development Community

21 August 2015
Publication Type: Working Paper
JEL Code: C12, C33, F43

The recent European Union crisis has sparked renewed interest in the achievement of convergence among potential member states prior to the establishment of a monetary union. This article examines real convergence in the per capita output of SADC countries using annual data from 1980 to 2013. An extension of the Evans & Karras’ approach that combines threshold modelling, panel data unit root testing and critical values bootstrapping is used in order to test for convergence. We find that the TAR specification outperforms the linear specification while testing convergence among the SADC richer countries and the SADC community as a whole. While considering the SADC middle income countries, the CMA and SACU regions; the linear performs better. Strong significant convergence is found only for SADC richer countries and the SACU union while the middle countries are characterized by a weak convergence. For the SADC community as a whole and the CMA region, there is significant divergence. These findings cast doubt on the establishment of an efficient monetary union among SADC’ member states in the short run.

Series title: Working paper 536
1 August 2015
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