On the Role of Portfolio Indicators of the Capital Flows in the Convergence Processes - An Application of Systems of Regression Equations in the Case of Selected CEE Countries

Abstract

We analysed the empirical importance of the capital flows in processes
of economic convergence of the CEE region. We depart from reference net
measures of capital flow reflecting the level of development of the financial
system and focus on gross capital flow. Our econometric model is based on
Seemingly Unrelated Regression Equation (SURE) elaborated by Arnold Zellner.
This environment seems an alternative to standard panel regression, because
it enables cross-country heterogeneity of parameters of interest (like pace of
convergence). We tested several restrictions of the unconstrained SURE model,
leading to simpler specifications that would allow for regional homogeneity of
the role of a particular factor (like capital flows) in growth fluctuations and
β-type convergence.