erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

An Intra-Distribution Dynamics Approach to Convergence in The Asia Pacific Basin: The Influence of Inward FDI and Neighbourhood Spillover

Chet Sun Chen (The University of Birmingham, U.K)

Abstract

This paper examines the empirical impact of FDI and neighbourhood spillover on regional income convergence via technology diffusion in the Pacific Basin. The capacity of parametric estimation to trace the rise and fall of economies over time is found wanting as it conceals just this evolution by averaging across economies. A nonparametric intra-distribution dynamics approach is employed based on five estimation tools: a kernel density estimator, Tukey’s boxplot, Markov’s transition matrix, the ergodic distribution of a Markov chain, and a stochastic kernel estimator. Estimating the entire distribution over time (not just a few parameters), the results show a polarisation of income in the Pacific Rim developing into twin-peaks. FDI and proximity are variables found to have little power to explain the emergence of these multiple convergence clubs. The lack of a statistical significance test requires caution in reading of these results. Recipients of FDI, no matter what their income level, do not move closer in prosperity to donors. Against expectations, there is (above a certain income threshold) a significant correlation between wealth and out-performance of neighbours. For methodology, distortion in bandwidth selection is found to be minimum; and bias introduced by discretisation led to the preference of continuous stochastic kernel estimation.

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