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Misleading Inferences from Panel Unit Root Tests: a Comment
Author(s) -
Ford George S.,
Jackson John D.,
Kline Audrey D.
Publication year - 2006
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2006.00592.x
Subject(s) - unit root , selection (genetic algorithm) , test (biology) , econometrics , economics , panel data , computer science , artificial intelligence , paleontology , biology
In their 2001 paper, Breuer, McNown, and Wallace argue that panel unit root tests are flawed in that the “all or nothing nature of these procedures may lead to serious misinterpretations of tests applied to mixed panels” (2001, p. 483). The authors propose an alternative test, the SURADF test, which allows for and estimates heterogeneous rates of convergence. We show that SURADF test results are highly sensitive to the selection of panel members. As such, application of the SURADF test seems to require a sound basis for panel member selection and a caveat that all results are panel‐specific.