University of Tehran Iranian Economic Review 1026-6542 20 3 2016 09 01 Reopening the Convergence Debate when Sharp Breaks and Smooth Shifts Wed, 1870-2010 356 377 58963 10.22059/ier.2016.58963 EN Omid Ranjbar Allameh Tabataba&#039;i University, Tsangyao Chang Department of Finance, Feng Chia University Chien-Chiang Lee Department of Finance, National Su Yat-sen University Zahra (Mila) Elmi Faculty of Economics, University of Mazandaran Journal Article 2016 04 07 <strong><span style="text-decoration: underline;">Abstract</span></strong> <br /> <br /> 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. https://ier.ut.ac.ir/article_58963_261bdc5c8714f3348aebbecbd7c88c91.pdf