Are the Trade Deficits of Less Developed Countries Stationary? Evidence for African Countries

18 Pages Posted: 19 Aug 2008

See all articles by Mark J. Holmes

Mark J. Holmes

University of Waikato - Management School, Department of Economics

Date Written: August 15, 2008

Abstract

This study tests for the stationarity of current account deficits for a sample of twenty six African countries. For this purpose, a new test advocated by Breuer, McNown and Wallace (2002) is employed which allows one to test for unit roots in heterogeneous panel datasets. This SURADF test involves estimating ADF regressions within a seemingly unrelated regression framework. While the benefits from creating a panel to overcome low test power are well known, this particular test also offers key advantages over existing alternative panel data unit root tests. Unlike previous tests, we are able to identify which members from within the panel are responsible for rejecting the null hypothesis of joint non-stationarity. In addition to this, the SURADF test does not presume disturbances that are independently and identically distributed. Using annual data covering the period 1960-2000, this study finds strong evidence in favor of current account mean-reversion for twenty one African countries.

Keywords: LDC. Current Account, Panel Data, Unit Rood, Trade Deficit, African Countries

JEL Classification: F3, F4, O1

Suggested Citation

Holmes, Mark J., Are the Trade Deficits of Less Developed Countries Stationary? Evidence for African Countries (August 15, 2008). Applied Econometrics and International Development, Vol. 3, No. 3, 2003, Available at SSRN: https://ssrn.com/abstract=1229142

Mark J. Holmes (Contact Author)

University of Waikato - Management School, Department of Economics ( email )

Hamilton
New Zealand

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