Investigating the Economic Convergence of Member Countries of Economic Cooperation Organization (ECO): Spatial Panel Econometrics

Regionalism is a prerequisite for trade liberalization and results in economic and monetary cooperation and leads to political and security convergence in the advanced stages. In recent years, the effectiveness of the Economic Cooperation Organization (ECO) in the process of regionalism has aroused a great deal of interest in both academic and political circles. The main objective of this paper is to examine the economic convergence among 10 members of Economic Cooperation Organization (ECO) in the presence of regional spillover over the period 1990 to 2010. To this end, we used the absolute convergence, sigma convergence and spatial conditional convergence. The contribution of this research is to investigate the convergence in the framework of spatial panel econometrics with country and time specific effects, avoiding omitted variable bias. Review of the dynamics of cross-sectional standard deviation indicates an increase in the dispersion of the logarithm of real per capita output and occurrence of sigma divergence. But, conditional beta convergence hypothesis is true for the countries under review and every country with average speed of 25% moves in the balanced growth path towards its own steady state. Also, results from estimation of spatial durbin model in the framework of spatial dynamic panel data with country (individual) and year (time) fixed effects indicate positive spatial spillover effects between ECO countries. Spatial elasticity of real GDP per unit of working-age population was estimated 0.63 percent.