Panel Unit Root Tests and Spatial Dependence

Center for Policy Research Working Paper No. 88

37 Pages Posted: 20 Apr 2011

See all articles by Badi H. Baltagi

Badi H. Baltagi

Syracuse University - Maxwell School of Citizenship and Public Affairs; IZA Institute of Labor Economics; Syracuse University - Center for Policy Research

Georges Bresson

ERMES (CNRS), Université Panthéon-Assas Paris II

Alain Pirotte

ERMES (CNRS), Université Panthéon-Assas Paris II; INRETS-DEST

Date Written: December 1, 2006

Abstract

This paper studies the performance of panel unit root tests when spatial effects are present that account for cross-section correlation. Monte Carlo simulations show that there can be considerable size distortions in panel unit root tests when the true specification exhibits spatial error correlation. These tests are applied to a panel data set on net real income from the 1000 largest French communes observed over the period 1985-1998.

Keywords: Nonstationarity, Panel Data, Spatial Dependence, Cross-Section Correlation, Unit Root tests

JEL Classification: C23

Suggested Citation

Baltagi, Badi H. and Bresson, Georges and Pirotte, Alain, Panel Unit Root Tests and Spatial Dependence (December 1, 2006). Center for Policy Research Working Paper No. 88, Available at SSRN: https://ssrn.com/abstract=1815340 or http://dx.doi.org/10.2139/ssrn.1815340

Badi H. Baltagi (Contact Author)

Syracuse University - Maxwell School of Citizenship and Public Affairs ( email )

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IZA Institute of Labor Economics

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Georges Bresson

ERMES (CNRS), Université Panthéon-Assas Paris II ( email )

12 Place du Panthéon
Paris, Cedex 5, 75005
France

Alain Pirotte

ERMES (CNRS), Université Panthéon-Assas Paris II ( email )

12 Place du Panthéon
Paris, Cedex 5, 75005
France

INRETS-DEST

23 rue Alfred Nobel
Champs sur Marne, 77420
France

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