Spatial dependence across provinces plays an important role in the formation of convergence clubs. The performance of geographical neighbors affects the probability of club membership through spillovers in capital accumulation and structural change.
Through the lens of principal components, spatial dependence, and regionalization methods, the municipalities of Bolivia are endogenously classified according to their similarity in human capital constraints and geographical location.
By applying a non-linear dynamic factor model, this article tests the club convergence hypothesis using a novel dataset of income at the district level. The results show significant five convergence clubs.