Drivers of structural convergence: Accounting for model uncertainty and reverse causality

Abstract

Objective: The objective of the article is the examination of factors that affect structural convergence and assessing their robustness.

Research Design & Methods: Determinants of structural similarity are examined using the Bayesian model averaging with dilution prior to establishing robust drivers in the long run. The short-run analysis is conducted using Bayesian model averaging within a dynamic panel framework with weakly exogenous regressors.

Findings: The application of Bayesian model averaging allowed for the identification of 12 variables associated with more similar production structures, among others, the bilateral total and intra-industry trade, the level of development, geographical distance, foreign direct investment flows, technology, corruption, and membership in the EU. Accounting for reverse causality showed that trade induces divergence in the short run – in line with predictions of neoclassical theories – but is associated with more similar production structures in the long run. Interestingly, even though old EU countries are characterised by more homogenous production structures, EU membership is associated with structural divergence once differences in income are included in the model. Even more unexpectedly, countries with more similar production structures are characterised by more similar and generally lower levels of corruption.

Implications & Recommendations: The analysis shows that policies aiming at the promotion of FDI and technological transfers can speed up the process of structural convergence.

Contribution & Value Added: The paper presents the first systematic analysis into the sources of structural similarity.

Keywords

structural similarity; structural convergence; economic structure; economic integra-tion; European Union

Author Biography

Krzysztof Beck

Economist, econometrician, researcher, academic lecturer, and Assistant Professor at the Lazarski University. Studied at the Cracow University of Economics and received a PhD in Economics at the Faculty of International Business and Economics at the Poznan University of Business and Economics. Recipient of the Statistics Poland Award for the best doctoral dissertation in Statistics and the National Bank of Poland’s Award for the best doctoral dissertation in Economics. Lecturer on English-language double diploma program accredited by Coventry University. His research activities include participation in research projects among others financed by the National Science Center. The author of dozens of papers and couple books, mainly in the field of macroeconomics, international economics, and econometrics, published both in Polish and English; also the author of statistical software. His main interests include international economics, international business cycles, international trade, currency unions, macroeconomics, econometrics, applied econometrics, mathematical economics, Bayesian statistics, and programming.

Correspondence to: Dr. Krzysztof Beck, Lazarski University, ul. Świeradowska 43, 02-662 Warszawa, Poland, e-mail: beckkrzysztof@gmail.com

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