A Generalized Nonlinear Iv Unit Root Test for Panel Data with Cross-Sectional Dependence

Accepted Manuscript

A generalized nonlinear IV unit root test for panel data with cross-sectional dependence Shaoping Wang, Peng Wang, Jisheng Yang, Zinai Li PII: DOI: Reference: To appear in: S0304-4076(09)00287-5 10.1016/j.jeconom.2009.10.034 ECONOM 3287 Journal of Econometrics

Please cite this article as: Wang, S., Wang, P., Yang, J., Li, Z., A generalized nonlinear IV unit root test for panel data with cross-sectional dependence. Journal of Econometrics (2009), doi:10.1016/j.jeconom.2009.10.034 This is a PDF file of an unedited manuscript that has been accepted for publication. As a service to our customers we are providing this early version of the manuscript. The manuscript will undergo copyediting, typesetting, and review of the resulting proof before it is published in its final form. Please note that during the production process errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain.

ACCEPTED MANUSCRIPT

A Generalized Nonlinear IV Unit Root Test for Panel Data with Cross-Sectional Dependence

Shaoping Wang∗, Peng Wang†, Jisheng Yang ‡, Zinai Li December 03, 2008

CR

Abstract

This paper proposes a unit root test for panel data with cross-sectional dependence. there exist some common factors in panels. The main idea is to eliminate the crosssectional dependence through the method of principal components as in Bai and Ng (2004) and then apply Chang’s test to the treated data. Under certain conditions, the proposed test is consistent and has a standard normal limiting distribution under the null hypothesis. Simulation results show that the proposed test compares favorably to other alternative tests.

JEL classification: C12; C33

sectional dependence

AC C

∗ School of Economics, Huazhong University of Science and Technology, China. Wang’s research is supported by Chinese National Science Foundation(Grant 70571026) and Chinese National Social Science Foundation (Grant...