A sector-level analysis of output club convergence in case of a global economy

Abstract

PurposeThis paper investigates the per-capita output club convergence in case of 120 countries for the period 1995–2015. Further, we disaggregate per-capita output into three broad sectors such as agriculture, industry, and service and investigate the convergence hypothesis.Design/methodology/approachThe paper tests this hypothesis using the Phillips and Sul panel club convergence technique.FindingsOur findings are as follows: (1) our results indicate the evidence of output divergence for the full sample; (2) when countries are divided into different clubs, the results exhibit the sign of per capita output club convergence both for aggregate and three major sectors. Further, this study confirms that industry's per capita output is the main driver for aggregate per-capita output club convergence in case of club 1. For club 2, agriculture's per capita output is a primary source for aggregate per capita output club convergence. Likewise, in the case of clubs 3 and 4, we find the service sector's per capita output is the main component for aggregate per-capita output club convergence; (3) both the service and industry sectors are major drivers for aggregate per-capita output club convergence.Practical implicationsThis study suggests to the policymaker that sector-specific policies need to be adopted to boost the per-capita output growth by improving the performance of each of the sectors across the countries.Originality/valueNotwithstanding, there are many studies that examine the output convergence using a notion of beta and sigma convergence, but studies regarding per capita output club convergence both at the aggregate and sectoral level are scanty.