THREE ESSAYS ON ECONOMIC GLOBALIZATION AND REGIONAL INCOME CONVERGENCE By Jun Zhao A Thesis Submitted to the Faculty of Graduate Studies in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy Department of Economics University of Manitoba © Copyright by Jun Zhao, November, 2014 DOCTOR OF PHILOSOPHY (2014) University of Manitoba (Economics) Winnipeg, Manitoba TITLE: Three Essays on Economic Globalization and Regional Income Convergence AUTHOR: Jun Zhao, M. C. (Nan Kai University) M. A. (University of Manitoba) SUPERVISORS: Professors John Serieux (Supervisor) Ardeshir Sepehri Barry Coyle NUMBER OF PAGES: x, 232 I Abstract This dissertation consists of three empirical essays, investigating the impact of globalizing flows on the pattern of income convergence at both inter and intra‐regional levels. The first essay answers two questions. First, to what extent have peripheral world regions been converging (or diverging) to (or from) the core world region of North America since 1970? And second, what are the effects of globalizing flows on convergence or divergence? Using a panel of ten world regions from 1970 to 2010, our test results indicate that these regions have experienced both convergence and divergence. In terms of the performance of individual peripheral regions relative to the core, there is no evidence that any region has persistently diverged from the core region (in terms of per capita income) since the 1970s. Nor is there any evidence of uninterrupted convergence on the part of any peripheral region. Among globalizing flows, none of them are found to be significantly associated with changes in inter‐regional income gaps. Fuel and non‐fuel commodity price increases appear to have a stronger deleterious effect on the core region than on peripheral regions, thus providing an impetus for inter‐regional convergence. The second essay seeks to determine the patterns of intra‐regional income convergence (or divergence) in Latin America and the Caribbean and assesses the effects of inter‐ and intra‐regional flows on the tendency to converge or diverge. Using time series data for 26 Latin American countries from 1970 to 2010, log t convergence tests indicate an overall convergence when per capita income is measured in US dollars and three convergence clubs when per capita income is measured in international dollars. Sigma convergence tests do not show any falling trends in income dispersion for the region and II each of its convergence clubs, regardless of the measurements used for per capita income. Our regression results also suggest that only the flows of inter‐regional export and import in high technology products have long‐run convergent effects on the pattern of convergence in Latin America and the Caribbean. The third essay examines the patterns of intra‐regional income convergence (or divergence) in East and South‐East Asia and investigates the effects of inter‐ and intra‐ regional flows on the pattern of intra‐regional convergence (or divergence). Using time series data for 17 countries from East and South‐East Asia, log t convergence tests identify the existence of two convergence clubs for both US and international dollar measurements of per capita income from 1970 to 2010. Although sigma convergence tests do not show any overall convergence trends for the entire period of study, they indicate a persistent decrease in the income dispersion of one club and a relatively stable income distribution in another club over the latest two decades. Our regression results suggest that intra‐regional trade, especially intra‐regional trade in high‐technology goods, has a strong tendency to promote income convergence across countries in East and South‐East Asia. III Acknowledgement I would like to express my deep appreciation to those whose assistance, support and encouragement made this thesis possible. I am extremely thankful to my thesis advisor, Dr. John Serieux, for constant encouragement, tremendous and invaluable guidance throughout my academic career at the University of Manitoba. I owe tremendous gratitude to my thesis committee members, Dr. Ardeshir Sepheri and Dr. Barry Coyle, for their insightful comments and suggestions as well as both academic and emotional inspiration. I am grateful to my external examiner Dr. James Davies for spending time and effort in going through my thesis and playing a critical role in improving the final version of this dissertation. I also thank Dr. Hikmet Gunay and Dr. Umut Oguzoglu for their constant encouragement and help. Special thanks go to Dr. Monika Bartkowska from Vienna University for her generosity to share her programing codes for log t convergence test with me. I am grateful to Gary Strike and Qingtao Sun for helping me with data collection. I thank Joyce Owusu‐ Muhanuka for her time and effort in editing my thesis. My family members and friends have been extremely supportive during the period I was writing my thesis. My parents and in particular my son, Yi‐Nan Wu, have constantly inspired me with their wisdom and knowledge. I especially owe a debt of gratitude to my friend Abdu Mansouri who has been always willing to help in whatever capacity he can. I also thank Qingtao Sun, Wenkai Liu, Zhen Li, Liping Bai, Tony Benzes and Rosa Sanchez for their interest and help. IV I am deeply thankful to my advisor, Dr. John Serieux for his generous financial support. During my study period, I also received funds from Graduate Studies (UMGF), Graduate Student Association (STEWARDSHIP) and Faculty of Arts (Endowment Fund). All of the financial assistance is gratefully acknowledged. Special thanks go to Dr. Ian Hudson for his recommendation for the thesis completion award. I am also grateful to Dr. Bose Pinaki for providing financial support to present my essays at various conferences. Finally, I dedicate this thesis to my father, Zhi Gang Zhao, who never stopped believing in me until he left us. The successful completion of this dissertation is the best way I can commemorate him. V Table of Contents Abstract ......................................................................................................................................................... II Acknowledgement....................................................................................................................................... IV Table of Contents ........................................................................................................................................ VI List of Tables and Figures .............................................................................................................................. X CHAPTER 1 INTRODUCTION .......................................................................................................................... 2 REFERENCES .............................................................................................................................................. 7 CHAPTER 2 THEORETICAL LITERATURE REVIEW ON THE INCREASED INTEGRATION OF ECONOMIES AND INCOME CONVERGENCE ............................................................................................ 10 2.1 INTRODUCTION ................................................................................................................................. 10 2.2 STATIC THEORIES RELATING TO THE INCREASING INTEGRATION OF ECONOMIES AND REGIONAL INCOME CONVERGENCE ......................................................................................................................... 11 2.2.1 International Trade and Regional Income Convergence ............................................................ 11 2.2.2 Capital Mobility and Regional Income Convergence ................................................................. 15 2.2.3 Labour Mobility and Regional Income Convergence ................................................................. 17 2.2.4 Technology Transfer and Regional Income Convergence .......................................................... 19 2.3 DYNAMIC THEORIES RELATING TO INCREASED INTEGRATION ACROSS ECONOMIES AND REGIONAL INCOME CONVERGENCE ......................................................................................................................... 22 2.3.1 Neoclassical Growth Models ...................................................................................................... 22 2.3.2 Endogenous Growth Models ...................................................................................................... 24 2.3.3 Geographical Growth Models .................................................................................................... 26 2.3.4 North‐South Growth Models...................................................................................................... 27 2.3.5 Modern North‐South Models ..................................................................................................... 31 2.4 RELEVANT MEASURES OF DIFFERENT CONCEPTS OF CONVERGENCE .............................................. 34 2.4.1 Sigma Convergence Test for Income Level Convergence ........................................................... 34 2.4.2 Beta Convergence Test for Growth Convergence ...................................................................... 35 2.4.3 Time Series Measures of both Level and Growth Convergence ................................................ 36 2.4.4 Relevant Measures of Club Convergence .................................................................................. 37