Are Cross-Country per Capita Income Differential and Globalization Cointegrated? An ARDL Bounds Testing Approach

Abstract

As hypothesized by Gerschenkron (1962), lower income countries would tend to grow at a faster rate than higher income countries and, as a result, their average incomes would converge in the long run. In addition to that hypothesis, theoretical studies to assess the impact of globalization on international economic convergence remain ambiguous. To address both the issues simultaneously, this study attempts to analyze the trend and possible association between the two, i.e., cross-country per capita income differential and globalization. This study incorporates a long list of countries (160 Countries) for a fairly long period of time (from 1990 to 2019). As expected, the study found a steady rise in global trade to GDP ratio, indicating a rising level of globalization in the assessment period. In addition to that, the study also found a rising level of average cross-country per capita real GDP (based on purchasing power parity (PPP)) differential in the given time horizon, contradicting Gerschenkron hypothesis. Finally, applying the ARDL bounds testing procedure, the study finds that cross-country per capita income differential and globalization are cointegrated; and the net effect of globalization on income differential is positive. Therefore, given the data, the study concludes that, over the years, along with rising level of globalization, per capita income differential diverges which causes cross-country per capita income inequality to rise.

Citation

Maji, K. (2022), "Are Cross-Country per Capita Income Differential and Globalization Cointegrated? An ARDL Bounds Testing Approach", Chandra Das, R. (Ed.) Globalization, Income Distribution and Sustainable Development, Emerald Publishing Limited, Leeds, pp. 47-56. https://doi.org/10.1108/978-1-80117-870-920221007