reopening the convergence debate when sharp breaks and smooth shifts wed, 1870-2010

abstract this paper attempts to re-investigate the catching-up (stochastic convergence) hypothesis among the selected 16 oecd countries applying the time series approach of convergence hypothesis with annual data over one century. to reach this aim, we propose a model which specifies a trend function, incorporating both types of structural breaks – that is, sharp breaks and smooth shifts using dummy variables and fourier function respectively. in order to detect the sharp breaks, we apply the multiple structural break models (bai & perron, 1998) and the fourier function proposed in becker et al. (2004) to capture the smooth shifts. our results show that most divergence process occurred over world war i (wwi) and world war ii (wwii). among the 69 estimated break points occurred over the period 1870-2010, 75 % of those break points result in catching-up and the remainder results in divergence.