Testing for Error Correction in Panel Data

Joakim Westerlund

No 2005:11, Working Papers from Lund University, Department of Economics

Abstract: This paper proposes four new tests for the null hypothesis of no cointegration in panel data that are based on the error correction parameter in a conditional error correction model. The limit distribution of the test statistics are derived and critical values are provided. Our Monte Carlo results suggest that the tests have reasonable size properties and good power relative to other popular residual-based cointegration tests. These differences arises because latter imposes a possibly invalid common factor restriction. In our empirical application, we present evidence suggesting that international health care expenditures and GDP are cointegrated once the possibility of an invalid common factor restriction has been accounted for.

Keywords: Panel Cointegration Test; Monte Carlo Simulation; Common Factor Restriction; International Health Care Expenditures. (search for similar items in EconPapers)
JEL-codes: C12 C32 C33 O30 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2005-01-26
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (7)

Published as Westerlund, Joakim, 'Testing for Error Correction in Panel Data' in Oxford Bulletin of Economics and Statistics, 2007, pages 709-748.

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Journal Article: Testing for Error Correction in Panel Data* (2007)
Working Paper: Testing for error correction in panel data (2006)
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