Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/259889 
Year of Publication: 
2004
Series/Report no.: 
Working Paper No. 2004:17
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
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.
Subjects: 
Panel-Data Stationarity
Cross-Sectional Dependence
Output Convergence
JEL: 
C15
C32
C33
Document Type: 
Working Paper

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