Diverging evidence of convergence hypothesis

In contrast, this paper revisits the issue via a flexible nonlinear approach recently developed by Hamilton [A parametric approach to flexible nonlinear inference. Econometrica, 69 (2001) 537-573]. The novel method not only provides a Lagrange multiplier test for nonlinearity but also allows us to derive a consistent estimation of what the nonlinear relation looks like. A real data set is used to investigate if the cross-country growth regressions exhibit nonlinearity and to see if there are “convergence clubs” and “diverging economies”. Empirical results indicate that the linearity assumption of cross-country growth regressions can be rejected to favor the multiple-regime steady states.