Convergence in TFP among Italian Regions - Panel Unit Roots with Heterogeneity and Cross Sectional Dependence

Convergence in TFP among Italian Regions:
Panel Unit Roots with Heterogeneity and
Cross Sectional Dependence

Joseph Byrne

University of Strathclyde

Giorgio Fazio*

Universita di Palermo

Davide Piacentino

Universita di Palermo

June 15, 2005

Abstract

This paper performs a number of tests to estimate convergence
in total factor productivity (TFP) among Italian regions during the
period 1970-2001. We generate the regional TFP series using growth
accounting methodologies, and then apply a range of panel unit root
tests to analyse the process of convergence. We extend the existing
literature by incorporating three main improvements. Firstly, we con-
trol for the heterogeneity arising from the different economic structure
of each region. Secondly, we look for clubs of convergence using tests
of poolability both on economic and statistical grounds. Finally, we
account for the cross-sectional dependence due to common shocks or
spillovers among different regions at the same time.

Keywords: Total Factor Productivity, Regional Convergence, Panel
Data, Unit Root Tests, Heterogeneity.

JEL Codes: D24, R11, R12, C31, C33, O47

* Author for correspondence: Dipartimento di Scienze Economiche, Aziendali e Fi-
nanziarie, ʊniversit` di Palermo, Viale delle Scienze - 90100 - Palermo, Italy. Email:
[email protected]

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