Convergence and Middle-Income Trap between Asian Country Members: New Findings
Oluleye H. Babatunde *
Department of Mathematics and Computer Science, The University of Virginia’s College at Wise, Virginia, USA.
OlaOluwa S. Yaya
Department of Statistics, University of Ibadan, Ibadan, Oyo State, Nigeria.
Oluwasegun B. Adekoya
Department of Economics, Federal University of Agriculture, Abeokuta, Ogun State, Nigeria.
*Author to whom correspondence should be addressed.
Abstract
This paper investigates the possibility of middle-income convergence among seven members of Southeast Asian nations (Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand, and Vietnam), with Malaysia being in upper-middle-income rank and other six countries in lower-middle-income rank. We apply unit root testing framework that allows for smooth nonlinearity, abrupt break, and cross-dependence in the income differences. Results show that these lower-middle-income countries are likely to converge among themselves and converge to the income level of Malaysia in the long run. Based on Add Asian cross-country policy recommendations, Economic policies capable of stimulating long-run economic growth of these lower-middle-income countries is therefore recommended, and the countries should be ready to take up the challenge of upper-income country, like Malaysia.
Keywords: Southeast Asia region, cross-sectional dependency, fourier function, income convergence, seemingly unrelated regression