Are US regional incomes converging? A nonlinear perspective

Abstract

This article deviates from the current practice of regional convergence by allowing output convergence to follow a non-linear process. In this scenario all standard linear unit root tests have low power, thus frequently leading to misguided conclusions. In light of this we adopt a unit root test based on a non-linear model which tests the null hypothesis of a unit root against a non-linear alternative. Our findings overwhelmingly support the tendency of US regions to converge over time.