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RESEARCH PRODUCT

Monetary union and productivity differences in Mercosur countries

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Abstract This paper investigates cross-country productivity convergence among Mercosur members plus associates (Chile and Bolivia) and Peru, during the period 1960–1999. The testing strategy is based on the definitions of time series convergence by Bernard and Durlauf (1995) [Bernard, A. B., & Durlauf, S. N. (1995). Interpreting tests of convergence hypothesis. Journal of Econometrics , 71 , 161–173] and applies sequentially the multivariate unit root tests proposed by Sarno and Taylor (1998) [Sarno, L., & Taylor, M. (1998). Real exchange rates under the recent float: Unequivocal evidence of mean reversion. Economics Letters , 60 , 131–137], Flores et al. (1995) [Flores, R., Preumont, P.Y., & Szafarz, A. (1995). “ Multivariate unit root tests ”. Mimeo, Universite Libre de Bruxelles] and Breuer et al. (1999) [Breuer, J. B., McNown, R., & Wallace, M. (1999). Series-specific tests for a unit root in a panel setting with an application to real exchange rates . Mimeo: University of South Carolina]. The last two tests allow to identify the countries that converge. Our results show evidence of convergence among the four Mercosur countries, using either Argentina or Brazil as benchmark. Weaker evidence of convergence is also found with Bolivia. The results point out that monetary union among the Southern Cone economies, though a far objective is not without sense.