Income convergence dynamics in ASEAN and SAARC blocs

Abstract

This paper examines whether convergence of real income exists among the Association of South East Asian Nations (ASEAN) and South Asian Association for Regional Cooperation (SAARC) countries for the period covering 1970–2009. Univariate Lagrange Multiplier (LM) unit root tests with structural break(s) are employed to check for the incidence of stochastic convergence, which is necessary for conditional convergence as proposed in the neoclassical model. We further examine the presence of β-convergence, which is considered as the sufficient requirement for conditional convergence. Test results suggest convergence among ASEAN members, with the absence of convergence in SAARC member countries.