Testing for Stationarity in Panel Data Models when Disturbances are Cross-Sectionally Correlated

No 2004:17, Working Papers from Lund University, Department of Economics

Abstract: In this paper, we investigate the effects of cross-sectional disturbance correlation on a previously suggested panel data stationarity test. We find that the previously suggested test has a serious size distortion if the disturbances to different cross sections are correlated. We suggest a new panel data test procedure that also tests the null hypothesis of stationarity. However, the test procedure that we suggest is robust against the presence of cross-sectional disturbance correlation, as well as serial correlation. Furthermore, the test has an approximate normal distribution and which makes p-values and critical values easy to obtain. By applying our test to investigate output convergence, we illustrate the adverse effects that can occur when neglecting to account for cross-sectional correlation when testing for stationarity in panel data models.

Keywords: Panel-Data Stationarity; Cross-Sectional Dependence; Output Convergence (search for similar items in EconPapers)
JEL-codes: C15 C32 C33 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2004-06-04, Revised 2004-11-26
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://lucris.lub.lu.se/ws/portalfiles/portal/195339306/WP04_17 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2004_017

Access Statistics for this paper

More papers in Working Papers from Lund University, Department of Economics School of Economics and Management, Box 7080, S-22007 Lund, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Iker Arregui Alegria ().