Income Convergence in the Asia-Pacific Region

Income Convergence in the Asia-Pacific Region

This paper uses the concepts of σ-convergence and β-convergence to evaluate empirically the hypothesis of income convergence in the Asia-Pacific region, and its subsets of East Asia and ASEAN during the period 1960-1999. Because of the East Asian financial crisis in the late 1990s, the analysis is carried out sequentially, first for the period 1960-1990 and then for the period 1960-1999. For the former period, we find evidence of conditional β-convergence in a group of 17 APEC countries and in 10 EASTASIA countries. No evidence of income convergence is found for the ASEAN group of countries. For the latter period, there is weak evidence of conditional β- convergence in a group of 16 APEC countries, and much weaker evidence of income convergence in EASTASIA. We attribute this finding to the damaging effects of the financial crisis in the second half of the 1990s. Also, the empirical evidence shows that openness to international trade is statistically the most important variable for sustaining economic growth in the Asia-Pacific region. Of the other variables macroeconomic stability has a positive impact on growth, while government spending and population growth have a negative effect in general.