Investigating the catching-up hypothesis using panel unit root tests: Evidence from the PIIGS

Abstract

The aim of this paper is to analyze the issue of income convergence for Portugal, Italy, Ireland, Greece, and Spain (PIIGS), towards France. The empirical analysis uses per capita GDP, in PPP and 2005 constant prices and covers the period from 1950 up to the recent pre-crisis year of 2009. The methodology applied uses non-stationary panel unit root tests both without as well as with structural breaks endogenously determined. The results clearly demonstrate the gain in power from combining structural breaks with panel data. Our findings provide evidence in favor of convergence for all the five countries with France.