A panel data test for poverty traps
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.
Document Type: Research Article
Affiliations: 1: Department of Economics, University of Iowa, Iowa City,IA, USA 2: Department of Economics,City University London, Northampton Square, D318 Social Sciences BldgLondon EC1V 0HB, UK 3: Department of Economics,University of Wisconsin-Milwaukee, Bolton Hall 852, 3210 N. Maryland Ave.Milwaukee,WI 53201, USA
Publication date: 2013-05-01