Abstract
For aggregated time series unit root tests are routinely applied to choose among trend and difference stationary models. Recent work demonstrates that such test can also be applied for testing panel data. However, it is well known that disaggregated data often exhibit a considerable amount of heterogeneity so that standard tests may perform poorly. To account for the heterogeneity in the data we allow for individual specific deterministics, that is, we let the time trends vary across the cross section units. It is shown that standard GMM estimators suggested for the dynamic panel data model may fail to give a valid test procedure. To overcome this difficulty, a modified GMM estimator is suggested. In a Monte Carlo study the finite sample properties of the alternative tests are compared.
Similar content being viewed by others
References
Ahn S, Schmidt P (1995) Efficient estimation of models for dynamic panel data. Journal of Econometrics 69: 5–27
Anderson T W, Hsiao C (1992) Formulation and estimation of dynamic models using panel data. Journal of Econometrics 18: 47–82
Arellano M, Bond S (1991) Some tests of specification for panel data: monte carlo evidence and an application to employment equations. Review of Economic Studies 58: 277–297
Arellano M, Bover O (1995) Annother look at the instrumental-variable estimation of error-components models. Journal of Econometrics 68 29–51
Breitung J, Meyer W (1994) Testing for unit roots in panel data: are wages on different bargaining levels cointegrated? Applied Economics 26: 353–361
Fuller W A (1976) Introduction to Statistical Time Series John Wiley, New York
Hansen L P (1982) Large sample properties of generalized method of moment estimators. Econometrics 50: 1029–1054
Harris R, Tzavalis E (1996) Inference for unit roots in dynamic panels. Working Paper, University of Exeter
Im K S, Peseran, M H, Shin Y (1995) Testing for unit roots in heterogenous panels Working Paper. Department of Applied Economics, University of Cambridge
Lee K H, Peseran M H, Smith R (1995) Growth and convergence: A multi-country empirical analysis of the Solow growth model. Working Paper No 9531, Department of Applied Economics, University of Cambridge
Levin A, Lin C F (1994) Unit root tests in panel data: asymptotic and finite-sample properties. Working Paper, University of California, San Diego
Newey W K, West K D (1987) Hypothesis testing with efficient method of moments estimation. International Economic Review 28: 777–787
Quah D (1992) International patterns of growth: I Persistency in Cross-Country Disparities. Discussion Paper, London School of Economics
Quah D (1994) Exploiting cross-section variation for unit root inference in dynamic data. Economics Letters 44: 9–19
Zhang J (1994) Performing a unit root test in panel data—with an application to OECD convergence. Discussion Paper, Chinese University of Hong Kong
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Breitung, J. Testing for unit roots in panel data using a GMM approach. Statistical Papers 38, 253–269 (1997). https://doi.org/10.1007/BF02925268
Received:
Revised:
Issue Date:
DOI: https://doi.org/10.1007/BF02925268