Abstract
Understand ing whether developing countries are converging toward similar income levels remains a central issue in regional development, given persistent disparities in fiscal capacity, institutional quality and structural transformation. While the convergence literature has identified convergence clubs, few studies have examined the role of fiscal policy in shaping club membership across heterogeneous developing economies. This study investigates convergence club patterns and the role of government spending in influencing club formation in 44 developing countries from 1990 to This study applies log-t regression to identify convergence clubs and uses multinomial logit regression to analyze the determinants of club membership. The results identify six convergence clubs and one divergence club, confirming heterogeneous long-run income dynamics among developing countries. Clubs 1 and 2 have relatively stronger and more stable economic performance, whereas Clubs 5 and 6 show lower income levels and slower convergence. The findings show that government spending significantly influences membership in convergence clubs, although its effects vary across groups. In lower-income clubs, higher government spending reduces the likelihood that countries remain trapped in lower-convergence paths, indicating that productive fiscal policy can accelerate structural transformation. The subperiod analysis further indicates some temporal heterogeneity in the fiscal policy–convergence relationship, particularly in the later subperiods. Population growth tends to slow convergence, while trade openness supports convergence through greater market integration. In contrast, the effects of foreign direct investment (FDI) remain mixed. These findings highlight the importance of fiscal efficiency and institutional capacity in promoting sustainable income convergence among developing countries.
Keywords: Club Convergence, Developing Countries, Economic Convergence, Fiscal Policy, Government Spending.