Testing for unit roots in short panels allowing for a structural break

Research output: Contribution to journalArticlepeer-review

Authors

Colleges, School and Institutes

External organisations

  • Department of Economics; Athens University of Economics and Business; Athens Greece

Abstract

Panel data unit root tests which allow for a common structural break in the individual effects or linear trends of the AR(1) panel data model are suggested. These allow the date of the break to be unknown. The tests assume that the time-dimension of the panel (T ) is fixed (finite) while the cross-section (N) is large. Under the null hypothesis of unit roots,
they are similar to the initial conditions of the model and its individual effects. Extensions of the tests to the AR(2) model are provided. These highlight the difficulties in extending the tests to higher order serial correlation of the error terms. Monte Carlo experiments indicate that the small sample performance of the tests is very satisfactory. Application of
the tests to the trade openness variable of the non-oil countries indicates that evidence of persistence of this variable can be attributed to trade liberalization policies adopted by many developing countries since the early nineties.

Details

Original languageEnglish
Pages (from-to)391-407
JournalComputational Statistics & Data Analysis
Volume76
Early online date26 Oct 2012
Publication statusPublished - 1 Aug 2014