Cross sectional and panel estimation of convergence

Cross sectional estimation of convergence regressions is known to be hazard ous if there is convergence towards heterogeneous steady state values. In t his paper, Monte Carlo methods are used to investigate the implications of this parameter heterogeneity problem; The cross sectional and pooled OLS es timators are compared with a panel estimator which is unaffected by heterog eneity. If there is heterogeneity, the latter outperforms both the uncondit ional and conditional cross sectional and pooled OLS estimators. (C) 2001 E lsevier Science B.V. All rights reserved.