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ABSTRACT. In this paper, the convergence of income per capita across U.S. metropolitan statistical areas (metros) is examined over the period between 1969 and 2011. We initiate the analysis with multivariate tests for stability, and the existence of unit roots, performed on the ratio of income per capita of a specific metro relative to the cross-sectional average. The tests used were: Multivariate homogeneous Dickey–Fuller, Levin–Lin–Chu (2002), Im–Pesaran–Shin (2003), MKPSS, Bai–Ng (2004) Panic and Hadri-LM tests. The analysis is complemented by the use of the panel stationarity test accounting for structural changes, as proposed by Carrion-i-Silvestre et al. (2005), which our other tests do not incorporate. The study of convergence is important for both economists, as a means to test growth theories and distinguish between different models, as well as policy makers who seek to maximize the utility of their constituents by making use of all information available to them. While, standard unit root tests indicates stationarity of our metric, i.e., the ratio of income per capita of a specific metro relative to the cross-sectional average, the tests of stability suggests divergence, barring the Bai–Ng test. But, given that the tests of stability are more conducive to checking for convergence, we conclude that in the 384 U.S. metros there is a divergence of per capita income. pp. 11–32
JEL codes: C12; O40

Keywords: panel data; income convergence; structural breaks; unit root test

How to cite: El-Montasser, Ghassen, Rangan Gupta, and Devon Smithers (2016), “Convergence of Per Capita Income: The Case of U.S. Metropolitan Statistical Areas,” Economics, Management, and Financial Markets 11(4): 11–32.

Received 26 August 2015 • Received in revised form 2 October 2015
Accepted 3 October 2015 • Available online 25 January 2016

GHASSEN EL-MONTASSER
University of Manouba
RANGAN GUPTA
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University of Pretoria
DEVON SMITHERS
University of Pretoria

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