Optimum currency area theory and business cycle convergence in emu: Considering the sovereign debt crisis

Abstract

The present chapter tries to examine the trend of productivity growth and the process of convergence of productivity among the countries within three blocks viz., ASEAN, APEC and SAARC, using the datacompiled by R. Summers and A. Heston in Penn World Table -Mark 5.6 and 7.1. Applying Galton modelof the growth process it indicates that the countries within ASEAN and SAARC block do not show anyconvergence of productivity during the period 1960 to 2010. However, the countries within APEC showthe sign of convergence of productivity. Standard tests for convergence show that only the APEC groupof countries satisfies the test of absolute convergence that is significant whereas ASEAN and SAARCfail to satisfy the test of absolute convergence. The application of the test of conditional convergence onthe ASEAN group of countries does not satisfy the criteria of convergence conditioned by the volume ofinvestment but it shows strong tendency of conditional convergence of productivity among the countriesof SAARC trade block.