Regional Income Convergence : Evidence from Panel Unit Root Tests

Abstract

This paper investigates convergence of eleven regional incomes in Korea by employing a panel unit root test method proposed by Levin and Lin (1993). To test the robustness of the result, we rely on the method developed by Im, Pesaran, and Shin (1996) as well. Applying individual unit root test to income series of each region, we obtained mixed results such that only three out of eleven regional incomes converge. Panel unit root tests, however, reject the null hypothesis that all the Korean regional incomes do not converge. This empirical finding implies that, in a rapidly growing economy such as Korea, at least some regional incomes have tendency to converge to its own equilibrium level. This result is consistent with the prediction of neoclassical growth theory.