A panel data test for poverty traps

Galvao Jr, A. F., Montes-Rojas, G. & Olmo, J. (2013). A panel data test for poverty traps. Applied Economics, 45(14), pp. 1943-1952. doi: 10.1080/00036846.2011.641930

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Abstract

This article develops a threshold panel data nonlinearity test for poverty traps. The new testing strategy extends the work on nonlinearity tests for panel data by considering threshold nonlinearities in the fixed-effects components. Monte Carlo simulations are conducted to evaluate the finite-sample performance of these tests. The tests are applied to the relationship between Gross Domestic Product (GDP) per capita and capital stock per capita. Our application to a panel of countries for the period 1973 to 2007 uncovers the presence of two regimes determined by the level of capital stock per capita. The conclusions from our test also support the existence of a poverty trap determined by a capital stock per capita level at the 11% quantile of its pooled worldwide distribution.

Item Type: Article
Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in Applied Economics on 5 April 2012, available online: http://wwww.tandfonline.com/10.1080/00036846.2011.641930
Uncontrolled Keywords: nonlinearity tests, panel data, poverty traps, threshold models
Subjects: H Social Sciences > HB Economic Theory
Divisions: School of Social Sciences > Department of Economics
URI: http://openaccess.city.ac.uk/id/eprint/12037

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