Applied Econometrics and International Development Vol.

13-1 (2013)

COMPARING THE SPEED OF CONVERGENCE
IN AMERICAN INTEGRATION AREAS
SPERLICH, Yvonne
*

Abstract
Economic growth theory predicts more success for North-South than for South-South
agreements. We compare the speed of convergence of the North-South area NAFTA
with that of the South-South area SICA and the one of the MERCOSUR. We apply
GSL fixed effects and a random effects regression with the Mundlak device,
respectively, both with an AR(1) errors. The results indicate that Southern agreement
areas clearly converge faster, whereas the within-convergence is faster for NAFTA.
But when looking at the confidence intervals, it is shown that the absolute information
value of the area-specific speed of convergence is rather limited
1
.
Keywords: regional integration, speed of convergence, Latin America,
NAFTA, MERCOSUR, CAIS, free trade areas, economic development
JEL code: F15, F43, O43, O11, E13

1. Introduction
In the last three decades, one important development is the increasing of North-South
(N&S) and South-South (S&S) agreements worldwide. The key motivation to create a
N&S-RIA is technology spill-over and enlargement of domestic market (Smulders and
Van de Klundert, 1996) whereas the institutional and political integration is often of
minor interest. However, the S&S-RIAs are founded mostly in order to improve the
regional security, solve cross-national problems, and strengthen the bargaining power
to third parties and reducing the economic dependence to the western industrialized
states. Consequently, the political and institutional issues are considered as being quite
important here. In this article we study the question whether different kind of RIAs
have different speeds of convergence or not.
For America we have the chance to compare a typical North-South with two kinds of
South-South integration areas (RIAs). The main focus is put on the speeds of
convergence, comparing integrating versus non-integrating countries for the different
types of RIAs and also comparing these RIAs in-between. We concentrate on the
following American RIAs as NAFTA (North American Free Trade Agreement), SICA
(Central American Integration System), and MERCOSUR (Mercado Comn del Sur).
The NAFTA is a N&S-RIA and the other both S&S agreements. We select these three
American RIAs along political topicality relating to pressure for reforms within the
existing RIAs, mainly due to the idea of the Free Trade of Americas (FTAA) as well as

*
Yvonne SPERLICH, Department of economics, University Geneva, Switzerland. E-mail:
yvonne.sperlich@bluewin.ch
1 Acknowledgement: The author appreciated a lot helpful comments of and discussion with
Inmaculada Martinez-Zarzoso (Universitat Jaume I), Ricardo Mora (Universidad Carlos III de
Madrid), Marcelo Olarreaga and Stefan Sperlich (Universit de Genve), Carola Grn and
Walter Zucchini (Universitt Gttingen, Research center for poverty, equity and growth), and
Ana Maria Alvarez Herrera (UNCTAD), the participants of the WTO, UNCTAD, UNIGE and
the Centre for Trade and Economic Integration seminars.
Applied Econometrics and International Development Vol. 13-1 (2013)


78
the foundation of the Dominican Rep.-Central America Free Trade Agreement (DR-
CAFTA) and the challenges of globalization (see Fugazza and Robert-Nicoud, 2006).
To obtain findings that are robust against misspecification, we calculate the speed of
convergence based on different modifications of the Solow growth model. As a by-
product when constructing confidence intervals we will also see why this measure must
not be taken too literally.
The regional integration and trade theory assume that N&S RIAs benefit in per capita
income and convergence though technological transfer, promote economic reforms and
FDI inflow. Along growth theory, however, this is much less predicted for the S&S-
RIAs, see for example Venables (1999). Nonetheless, several empirical studies
indicated that also the membership in S&S agreements has a positive impact on growth
and convergence which is partly in accordance (c.f. te Velde, 2011) and partly in
contradiction to a significant part of the literature based on economic theory. In this
present study we continue the discussion but also comment on the question which kind
of information can be obtained from the speed of convergence.
The speed of convergence is typically debated in the context of growth theory or trade,
as it is hoped to find out more about the long-term adjustment paths of countries in
terms of their per capita income development. The convergence rate provides
information about the time period in which the gap between the recent per capita GDP
of one country and the income of the leading country within a group will be closed.
Speed of convergence is a tool to bring all measures to the same scale making them
comparable. According to different predictions based on the human capital augmented
Solow model (HCA), regions are generally expected to converge at a speed of about
two per cent per year; see e.g. Sala-i-Martin (1996), though Evans (1997) stated even
faster rates. This implies that the half-life distance to its steady state is about 35 years.
If we take this value as a benchmark, it would be interesting to see whether the speed
of convergence for the different types of RIAs is higher or lower than two per cent p.a.
According to the new integration- and growth theory, the speed of convergence in
RIAs should be higher than in geographical regions due to increasing economic
cooperation (Smulders and Van de Klundert, 1996) or simply to certain similarities, see
De Benedictis and Tajoli (2007). As far as we know, there does not exist any empirical
study that compares the speed of convergence between RIAs or inside versus outside
RIAs for different American regions. For a most recent study of these regions see for
example Escobari (2011).
The model framework and methods
Let y(t) be the per capita income at time point t, y* the steady state income, n the
exogenous growth rate of the labour force, g the technological progress, and o the
depreciation rate. The speed of convergence is proportional to the distance to steady
state, cf. Barro and Sala-i-Martin (1995),
*) / ln(
)) ( ln(
y y
y
y
dt
t y d


for a particular .
Sperlich, Y. Comparing the Speed of Convergence in American Integration Areas



79
Let us consider the panel data equation for measuring unconditional -convergence,

it i
T
i i i
t y e t t y t y c
t


) ( ln ) 1 ( ) ( ln ) ( ln
1 2 1 2
, = t
2
- t
1
(1)
where
it
summarizes all heterogeneity,
i
are unknown (random or fixed) effects. Often
t
t
/ 1

e is denoted by , the so-called 'beta' coefficient. A particular extension of
the above equation is the human capital augmented (HCA)-Solow-model for panel data
with saving rates for capital and human capital, s
K
and s
H
constant returns to scale:
it
T
i i i
Hi Ki i i
t t y e g t n e
t s e t s e t y t y
q o
t o
t o
t o
t
t o
o
t t
t t

2 1 2
2 2 1 2
) ( ln ) 1 ( ) ) ( ln(
1
) 1 (
)) ( ln(
1
) 1 ( )) ( ln(
1
) 1 ( ) ( ln ) ( ln
(2)
with and being the unknown elasticises. The so-called convergence rate is used
for the estimation of the speed at which countries, respectively areas, converge to its
steady state. According to the panel equation above, the convergence rate is
calculated via t | t / )

1 ln(

giving the annual adjustment rate of each region.

The conditional Solow-model with typical assumption of diminishing returns predicts
t o 1/3 and 06 . 0 o g n , so that the convergence rate would equal 0.02,
i.e. two per cent per year. This implies that the half-life time for closing the income gap
to the steady state is thirty five years; see Sala-i-Martin (1996). The halfway to steady
state is calculated by / ) 2 ln( delivering an often used approximation of the half-life
time Hl to closing the income gap (solution of exp(- Hl) =0.5). If the Solow-model is
confirmed, then might be estimated from the restricted regression with constant
returns to scale.
Often discussed problems are business cycles and unit roots when considering one
year distances. We consider here three-year-periods, i.e. t
2
- t
1
= = 2, but such that
each interval enters the panel to keep the time dimension large. We use panel structures
in cross-section growth regression the convergence rates are underestimated, see Evans
(1997). The literature identifies three important sources of inconsistency in the
analyses of growth and convergence: omission of country specific effects factor
productivity or initial technological endowments, endogeneity due to simultaneity (of
s
H
, s
K,
and/or n), and possible inconsistency due to the dynamics in the panel; see the
for example Lee, Pesaran and Smith (1997). The first problem could be addressed by
fixed effects models, e.g. using Least-Square Dummy Variable estimators (LSDV). We
additionally include an AR(1) autocorrelation coefficient, common for all panels, but
assume homoskedasticity. By applying feasible weighted least squares estimators
(GLS) we make use of this variance-covariance structure to obtain efficient estimates
though they may suffer from a small (cf. Phillips and Sul, 2007) Nickel-bias. Due to
significant autocorrelation, none of the standard IV methods would work here. Hauk
and Wacziarg (2009) recommended not using fixed effect models as they would yield a
serious underestimation of the returns of interest. In fact, they can only identify the
within effects. An alternative is the random effects model combined with the Mundlak
Applied Econometrics and International Development Vol. 13-1 (2013)


80
(1978) device (i.e. including the time averages of the explanatory variables except for
basis income) to encounter possible endogeneity.
it i t Hi H i n Ki K
Hi H i n Ki K
i i
t y time s g n s
t s g t n t s
t y t y
c | | | o | |
| o | | |
t

) ( ln ) ln( ) ln( ) ln(

)) ( ln( ) ) ( ln( )) ( ln(
) ( ln ) ( ln
1
2 2 2 0
1 2
(3)

where ) ln( , ) ln( , ) ln(
Hi i Ki
s g n s o refer each to the time average. Then, the
total return to )) ( ln(
2
t s
Ki
is equal to T
K K
/ | | (4)
with T being the number of waves (years) included, and can be calculated for the other
returns analogously. Note that these can hardly be compared with the within returns.
Also in (3) we include an AR(1) coefficient following Baltagi and Wu (1999). Finally,
the problem of a possible inconsistency due to potential simultaneity between per
capita income, respectively growth, and population growth or investments (K or H), we
counteract by taking one year lagged (log) population growth, and investments
respectively, instead of the simultaneous annual observations.
There are pros and cons to exclude the average basic income as for example that then
basic income might be endogenous due to non-observed country specific
characteristics. The counterargument is that a fixed effect can only capture
endowments which are time invariant, and these are quite similar inside each RIA.
For all RIAs we have therefore four estimates for the return to initial income, the : for
the unconditional, the unrestricted conditional, and the restricted conditional model. As
the restriction was statistically always rejected at any reasonable rejection level, we
have skipped it for the rest of the paper. Second, for each model we used two
estimation procedures, a) the GSL fixed effects regression with an AR(1)
autocorrelation coefficient, and b) the random effects AR(1) model with the Mundlak
device (including the time averages of population growth, investment, and schooling)
in the conditional growth model. We used GLS as in our context with such moderate
sample sizes, only efficient estimators produce confidence intervals of reasonable
lengths for the half-life-time. The random coefficient model is necessary as the fixed
effects model provides only within estimates whereas the random effects model
provides the total effect (weighted averages of within and between effects). The pure
between estimates can hardly be obtained due to the very small country sets.
The confidence intervals for the convergence speed measured in the half-life time Hl
were also calculated in a conservative but practical way. Our panel estimation
procedure provides us directly with confidence intervals for all the coefficients of our
model, and therefore for the implied . Taking the lower- and upper bounds, say lb(

)
and ub(

), we can obtain an estimate of the Hl-confidence interval via

ub(Hl)= )

( / ) 2 ln( lb , and lb(Hl)= )

( / ) 2 ln( ub respectively. We give confidence

intervals with an approximate coverage probability of 95%. One might think that more
Sperlich, Y. Comparing the Speed of Convergence in American Integration Areas



81
sophisticated approaches might be better; the delta method is probably the most
popular one. However, the delta method is a linear approximation which, in an
exponential context like ours, is inappropriate (i.e. looks more sophisticated but gives
intervals with less precise coverage probability).

2. The empirical results
Before we discuss the outcomes for each RIA, it should be mentioned that almost all
estimates lie in the ranges of Lee, Pesaran and Smith (1997) and many others, found
for world-wide sample studies. The main focus will be on the relative outcomes, i.e.
the comparison between RIAs. All confidence intervals reported in this paper refer to
95% confidence intervals. They will not be symmetric because they refer to a
logarithmic transformation of the original estimate. From an interpretational point of
view it is absolutely convincing that the confidence intervals for the estimated Hl are
positively skewed (i.e. to the right) as we are expecting more certainty towards zero
years and less towards infinity.
Countries were only included for the periods when they indeed were members of the
particular RIA. That is, we are not simply estimating our models for each set of
countries that today forms a RIA, but calculate the model coefficients for exactly the
years and countries with active membership. This certainly results in unbalanced panel
data analyses. The time averages for the Mundlak device, see above, will nevertheless
always refer to the period starting from the foundation of the RIA until 2010. The
actual number of involved observations (denoted here there by N) is given in each
table. We discuss the outcomes step by step and organized by RIAs before we come to
the comparison. We start with discussing our findings for the NAFTA.
NAFTA
In Table 1 we can see that in the period from 1994 to 2010 the members of NAFTA
have been converging with a rate that depending on model and estimation method
lies between -0.0032 and 0.95 p.a., i.e. 0 and 95 percent. In other words, this implicates
in absolute values a half-life time between 0.7 years and infinity, i.e. divergence. When
we look at the confidence intervals, they range from 0 years to infinity. On a first
glimpse this certainly sounds ridiculous and contradictory but it will get
understandable in the following discussion when looking closer to the details.
To get a better idea of what these results can tell us, we first should separate the
estimates into those coming from conditional and unconditional models, respectively.
It is important then to have in mind that the fixed effects model (1) is basically also a
conditional model though it does not explicitly condition on the investments or
population growth. Instead, it conditions on all fixed factors of each country, including
the averages of all time varying factors. Therefore it is not surprising that here as well
as for the other RIAs its coefficients are closer to those of model (2) [also with fixed
effects] than to those of any other model. The seemingly big differences of the
coefficients for investment rates and population growth between models (2) and (3) are
not significant when looking at its standard deviations. Given these results and the
discussion in the literature (see Section 1 and 2) there is no clear reason why one
Applied Econometrics and International Development Vol. 13-1 (2013)


82
should favour one conditional model over the other. It is therefore quite welcome that
the resulting confidence intervals for Hl are mainly overlapping so that we can claim
that our results are quite robust. The interval lengths (still neglecting the unconditional
random effect model) range from 2.2 to 2.75 years. Note however, that for the
conditional model the total effect is quasi the within effect as for only three countries
the conditional between effect is simply not identified.
The maybe first and most striking fact is that the economies at a whole rather diverge
than converge, at least for the time forming NAFTA, see now the unconditional
random effects model. Even if we account for the high variability the lower bound of
the confidence interval still predicts a Hl of about 40 years. This means that if we find
convergence at all inside NAFTA, then only when conditioning on the per capita
strength of each economy involved. In fact, the country dummies in the fixed effects
models confirm that since the foundation of NAFTA the US still has had the strongest,
Mexico the weakest p.c. growth. Maybe, the 15 years of existence of NAFTA were
only to few to see already now an economic convergence, especially as at the
beginning of NAFTA the countries were extremely different, not only regarding
economic aspects. One would expect that first some general conditions (political,
socio-structural, infrastructure, institutional, but also some specific economical ones
like FDI, trade openness or inflation) would have to converge before we can expect the
whole economies to do so.

Table 1: Estimated results of speed of convergence in NAFTA 1994-2010
N=51 Unconditional growth model (1) Conditional growth model
random effects fixed effects random effects (3) fixed effects (2)
LInv -- -- .1201 (.0481) .1380 (.0414)
LPop -- -- -.1429 (.1653) -.2432 (.1404)
LSchool -- -- -.1195 (.1275) -.0919 (.0899)
Time -.0023 (.0010) .0055 (.0013) .0052 (.0031) .0040 (.0026)
-.0032 (.0107) .4257 (.0979) .4201 (.1053) .3796 (.0928)
Implied -.0032 .9532 .9169 .7119
Hl & c.i. [38.6;) 0.73 [0;2.20] 0.76 [0;2.48] 0.97 [0;2.75]
Note: Standard errors for coefficients estimates are in parenthesis. Hl stands for half-life in
years with confidence intervals of 95%. The coefficients for LInv, LPop and LSchool always
refer only to the within returns. For model (3), following equation (4) we obtained as total
returns: 0. 9342 for LInv, -0. 9636 for LPop, and -0.1195 for LSchool.

SICA
From Table 2 one can see that in the period from 1993 to 2010 the members of SICA
have been converging with a rate that, depending on model estimation method lies
between 0.0028 and 0.6252. This implicates a half-life time lying between 1.11 and
246.9 years in absolute values. When looking at the confidence intervals, the value
even ranges from 0.6 years to infinity. But again, for a correct interpretation one has to
carefully distinguish between the models and estimated coefficients.


Sperlich, Y. Comparing the Speed of Convergence in American Integration Areas



83
Table 2: Estimated results of speed of convergence in SICA 1993-2010
N=119 Unconditional growth model (1) Conditional growth model
random effects fixed effects random effects (3) fixed effects (2)
LInv -- -- .0153 (.0122) .0117 (.0104)
LPop -- -- -.1977 (.0916) -.1774 (.0654)
LSchool -- -- -.0556 (.0980) -.0469 (.0665)
Time -.0016 (.0011) .0072 (.0012) .0002 (.0018) .0066 (.0017)
.0028 (.0149) .3568 (.0482) .0991 (.0314) .3496 (.0468)
Implied .0028 .6252 .1104 .6007
Hl & c.i. 246.9 [21.0;) 1.11 [0.60;1.86] 6.28 [3.58;17.7] 1.15 [0.65;1.91]
Note: Standard errors for coefficients estimates are in parenthesis. Hl stands for half-life in
years with confidence intervals of 95%. The coefficients for LInv, LPop and LSchool always
refer only to the within returns. For model (3), following equation (4) we obtained as total
returns: -0.0036 for LInv, -0.1768 for LPop, and -0.0430 for LSchool.

Have in mind that in the fixed effects models is just the average of the (conditional)
within beta coefficients, indicating the country specific convergence to their steady
state. Having this in mind it is interesting to see how the estimates differ for beta. The
convergence coefficient in the conditional fixed effects model is relatively high
(0.3496) compared to that one of the random effects (with Mundlak device) model
(0.0991). The last-mentioned coefficient shows the influence of the initial income on
growth over time and countries. As it is the weighted average of the within and the
between effect, it is interesting to know that the between-effect is about 0.0051
confirming our results from the unconditional random effects model. It means that
inside of the SICA, each member converges pretty fast (in average) to his own steady
state, but the whole group converges only slowly to a common one. Like for the
NAFTA, inside the SICA there is an important distance in the per capita initial income
between the richest countries (Panama, Costa Rica) and the poorest ones (Nicaragua,
Honduras), though all countries are considered as developing countries. Nonetheless,
we can see a catching-up even though a very slow one compared to the high dispersion
of initial incomes among the members. The cooperation and coordination between the
members is relatively low, see for example the intra-regional trade intensity index of
the UN-RISK
2
: After the signing of the agreement the intra-regional trade increased
until 1996, but then it has been abating a lot. In both conditional models the
coefficients of investment, population and school exhibit quite similar values and
significances, but they are all insignificant. The main impact on growth comes
therefore from the initial income which is comparatively strong and always significant
except for the unconditional random effects model.
MERCOSUR
In Table 3 we can see that during the period from 1991 to 2010 the members of the
MERCOSUR have been converging with a rate between 0.1117 and 0.4458 p.a. This
implicates a half-life time of about 1.55 and 6.21 years in absolute values. Even when

2
see http://www.cris.unu.edu/riks
Applied Econometrics and International Development Vol. 13-1 (2013)


84
we look at the confidence intervals, it only ranges from 0.97 to 15 years. Compared to
the other two RIAs, this time frame seems - at a first glimpse - quite tight.
Table 3: Estimated results of speed of convergence in MERCOSUR 1991-2010
N=136 Unconditional growth model (1) Conditional growth model
random effects fixed effects random effects (3) fixed effects (2)
LInv -- -- .1041 (.0295) .0920 (.0242)
LPop -- -- .3188 (.3044) .1761 (.2604)
LSchool -- -- .2139 (.1629) .1729 (.1076)
Time .0029 (.0019) .0067 (.0017) .0039 (.0029) .0049 (.0021)
.1001 (.0285) .2823 (.0450) .2388 (.0400) .2950 (.0432)
Implied .1117 .4157 .3247 .4458
Hl & c.i. 6.21 [3.71;15.0] 1.67 [1.03;2.82] 2.14 [1.38;3.57] 1.55 [0.97;2.54]
Note: Standard errors for coefficients estimates are in parenthesis. Hl stands for half-life in
years with confidence intervals of 95%. The coefficients for LInv, LPop and LSchool always
refer only to the within returns. For model (3), following equation (4) we obtained as total
returns: 0.1079 for LInv, 0.2528 for LPop, and 0.2000 for LSchool.

Recall that our sample contains the countries of MERCOSUR plus associated countries
(with the respective entries), i.e. we are not just speaking of the inner group of full
members. Note first that LInv is strongly positive significant whereas LPop and
LSchool are insignificant. Their differences between the random (with Mundlak
device) and fixed effects models are also insignificant. Ignoring the first model, the
confidence intervals do mainly overlap ranging between about 1 to 3.5 years only.
From the last column of Table 3 we see that again, in average the member states of
MERCOSUR converge quite rapidly to its own steady state, but in average not as fast
as we saw it in NAFTA and SICA. On the other hand, along the random effects models
we see that also the overall convergence is highly significant and relatively fast. So,
although the MERCOSUR is a heterogeneous group of countries too, it appears that
this agreement triggers growth impulses, intra-regional trade and technical exchange
from which the poor members can benefit to, on a long run, catch up. This might be a
bit surprising because MECOSUR has often been criticized for its weak and inefficient
institutions; but it seems that the objective of common convergence is much better
attended here than it is in the other two RIAs.

3. Conclusions
We have investigated the speed of convergence for different kind of RIAs on the same
continent comparing the North-South integration area NAFTA with the both South-
South agreements SICA and MERCOSUR. This has been done on the basis of
different growth models and estimators. Economic growth theory typically pronounces
in favour of North-South and rather against South-South RIAs. Our modelling allows
us to differentiate within from total effects so that we get an idea of within versus all-
over convergence. This is important as one thing is the average of convergence speed
within each member state (i.e. to its country specific steady state), and another thing is
the all-over convergence. Due to the small number of countries (small cross sections),
Sperlich, Y. Comparing the Speed of Convergence in American Integration Areas



85
the pure between estimators can hardly be identified (if at all). It has therefore been
replaced in our study by the very rudimental unconditional random coefficient model.
In summary we can say, each of the three investigated RIAs, the North-South RIA
NAFTA and the two South-South RIAs, show its own characteristics. For a North-
South RIA as the NAFTA we would expect relative moderate convergence rate despite
high growth impulses, because the distance between the richest and poorest member is
relatively large. But NAFTA shows the highest lambdas for conditional and within
convergence. Looking at the confidence intervals we even may conclude that each
country may have already converged to its own steady state. However, when we
consider the (real, i.e. also without fixed effects) unconditional model, we find rather
divergence than convergence. For the SICA one observes more moderate values of
and a longer Hl for the conditional models. The within convergence is again much
stronger than the total one but SICA exhibits at least positive (including the
conditional between estimate) and for all models, no matter if we look at within or
total effects. Although the SICA is a South-South RIA, we are dealing here with a
quite heterogeneous group, because the dispersion of initial income is much higher
between the countries than within (i.e. over time). But convergence between the
countries has been quite weak since the foundation of SICA. Taken together with all
associated members, also the MERCOSUR is a quite heterogeneous RIA. We find here
the lowest and values for the within models what indicates that in average, the
countries converge more slowly to their own steady state than it is the case for NAFTA
or SICA. However, it exhibits a stronger conditional total convergence than SICA (not
comparable with NAFTA as there the between effect is not identified for the
conditional model due to the small country set), and is the only RIA showing
significant all-over convergence, compare the Hl confidence intervals of the
unconditional random effects models. Despite the institutional weaknesses and
inefficiencies, it seems that this RIA triggers cross country growth impulses, stronger
cooperation, and between-convergence.
Note that we have found a kind of negative correlation between within and total effect:
the faster countries of a RIA converge to each other, the slower they converge (in
average) to its own steady state. This is by no means counter intuitive but rather what
one would expect. It is further remarkable, that in our study we have found that the
North-South agreement area exhibits strongest within convergence but else divergence,
the loose South-South agreement area (SICA) a less strong within but some weak total
convergence, and the more tight South-South agreement (MERCOSUR) the weakest
within but the strongest total convergence. The often claimed argument that this simply
confirms the theory of convergence clubs, and that strong South-South RIAs would
boost this effect towards poverty traps, is definitely not true. The growth performance
of MERCOSUR countries can easily compete with those of the SICA or NAFTA.
Finally, as a byproduct, our study shows that adjustment speeds within these RIAs are
much higher than two percent. But looking at the confidence intervals it has been
illustrated that the numerical values of lambda do not permit reliable statements
regarding the number of years etc. Clearly, any external or internal shock would be
sufficient to render this forecast entirely inaccurate. But even without them one has to
Applied Econometrics and International Development Vol. 13-1 (2013)


86
be careful with the interpretation of absolute and extreme values. So far done research
has been facing the same problem but often without noticing. Instead, they take the
point estimates quite uncritically for their conclusions. We are the first presenting the
Hl-time together with a model robustness check and confidence intervals.

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Sperlich, Y. Comparing the Speed of Convergence in American Integration Areas



87
Annex: The Regional Integration Areas and Data

NAFTA (North America Free trade agreement) was founded in 1994. The members
are the USA, Canada and Mexico. This RIA arose from the bilateral agreement
between Canada and the USA (1989). Its target is to eliminate trade and investment
barriers between the three members. This RIA has two supplements, the North
American Agreement on Environmental Cooperation (NAAEC) and the North
American Agreement on Labor Cooperation (NAALC). So clearly, this RIA is a
cooperation between a developing country and two high income countries.
SICA (Central American Integration System; in Spanish: Sistema de la Integracin
Centroamericana) started in 1993. Its members are Costa Rica, El Salvator, Guatemala,
Nigaragua, Panama, Honduras and Belize (since 2000 as a full member). Regional
programs are focused on solving security problems (e.g. against organized crime) and
social issues. Four members, namely Guatemala, El Salvador, Honduras, and
Nicaragua, have formed a group called The Central America Four to reinforce the
regional cooperation by means of establishing a free movement of its citizens without
any restrictions or checks across borders between the signatory states.
MERCOSUR was founded in 1991 by Argentina, Brazil, Uruguay, and Paraguay.
Venezuela is signed full membership in 2006. Associated members are Peru (2003),
Chile (1996), Bolivia (1997), Ecuador (2004) and Colombia (2004). Therefore, in 1986
Argentina and Brazil not only signed a bilateral agreement, but also started
negotiations with Uruguay and Paraguay. The MERCOSUR treatment of Asuncion
was concluded in 1991. The intended objectives at the time were the creation of an
internal market with a free flow of goods, services, and any production factors between
the member states. This was to be achieved by the reduction of tariff and non-tariff
trade barriers, a common customs and trade policy, the coordination of macroeconomic
and sectoral policy in agriculture and industry, as well as fiscal and monetary policy
including exchange rates, etc. Since 2005 there has been established a so-called
convergence fund to help the poorer regions from which mainly Paraguay has been
beneficiary. But a continuing problem is the weak institutions of MERCOSUR, and the
differences of trade rules between full and associated members.
We use here data selected from different data sources: the real GDP per capita and the
growth rates of population are from the World Development Indicator database. All is
reported in international PPP$. Furthermore, we work with the (logarithmic) schooling
years, henceforth LSchool, of the working-age population as a proxy of log human
capital ln(s
H
) which is provided in the education data set of Barro and Lee
3
. The rest is
taken from the Penn World Tables by Summer and Heston which includes real
investment shares to GDP, from which we calculated the logarithm to approximate
ln(s
K
) called LInv, and population growth rates from which we calculated ln(n+0.05)
called LPop in the following. Where data were missing we applied linear interpolation
using the neighbor years.


3
See www.barrolee.com/data/full1.htm
Applied Econometrics and International Development Vol. 13-1 (2013)


88
Annex data
Table to the submitting process: Sperlich 2012: Comparing the speed of convergence
SICA199
3&2010
Belize Costa R. Guatema
la
El
Salvador
Hondu
ras
Nicara
gua
Panama Average
Popul. 2,97 2,40 2,32 1,54 2,64 2,44 2,05 2,34
GDP p.c. 5071,47 6973,31 3510,35 4194,03 2838,84 1720,87 7128,10 4491,00
Invest. 27,26 20,60 16,53 15,15 26,64 17,79 19,52 20,50
Popul. 3,39 1,47 2,50 0,52 2,00 1,35 1,57 1,83
GDP p.c. 5988,15 10377,5 4292,16 5981,2 3518,69 2613,64 12207 6425,49
Invest. 25,31 20,56 15,01 13,34 20,23 27,34 22,23 20,57

NAFTA
1994&2010
Canada Mexico USA Average
Population 0,96 1,76 1,23 1,32
GDP p.c. 27243,91 10681,85 33427,71 23784,49
Investment 17,77 20,36 19,05 19,06
Population 1,09 1,23 0,66 0,99
GDP p.c. 35240,88 12440,98 42337,88 30006,58
Investment 21,59 21,23 17,01 19,94

MERCOSUR
1991&2010
Argentina Bolivia Brasil Chile Columbia Ecuador
Population 1,07 2,28 1,61 1,67 1,95 2,22
GDP p.c. 8248,22 1831,62 5426,35 5208,25 4973,66 2978,71
Investment 15,64 11,92 17,64 18,53 15,15 28,1
Population 0,86 1,58 0,87 0,92 1,39 1,41
GDP p.c. 14362,62 4349,55 10055,89 13595,9 8487,59 7200,99
Investment 21,55 12,99 16,55 22,55 25,55 27,55

MERCOSUR
1991&2010
Paraguay Peru Uruguay Venezuela Average
Population 2,62 1,96 0,74 2,23 1,835
GDP p.c. 4129,19 3400,56 6149,02 5194,06 4753,964
Investment 27,55 20,13 14,05 16,5 18,521
Population 1,76 1,07 0,34 1 1,12
GDP p.c. 4647,3 8555,33 12902,74 0,57 8415,848
Investment 20,55 25,55 21,55 22,55 21,694
Prescriptions: GDP p.c.: GDP per capita in PPP$ (WDI). Population: Annual
population growth (WDI) Investment: Investment Share of GDP (PWT)


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