Convergence in West German regional unemployment rates
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Date
2006-11-10T07:45:06Z
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Abstract
Differences in regional unemployment rates are often used to describe regional economic
inequality. This paper asks whether changes in regional unemployment differences in
West Germany are persistent over time. Understanding the persistency of regional
unemployment differences helps us to asses how effective regional policy can be. While
univariate tests suggest that changes in unemployment differences are persistent, more
powerful panel tests lend some support to the hypothesis that regional unemployment
rates converge. However, these tests reveal a moderate speed of convergence at best.
Since there is a structural break following the second oil crisis, we also employ tests
that allow for such a break. This provides evidence for both, convergence and quick adjustment
to an equilibrium distribution of regional unemployment rates that is subject
to a structural break.
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Keywords
Stochastic convergence, Structural break, Unemployment, Unit root