Roberto Basile, Isae, Rome and University of Macerata, Rome, Italy, Sergio Destefanis, University of Salerno, Salerno, Italy, Mauro Costantini, ISAE (Institute for Studies and Economic Analyses) and University of Roma La Sapienza , Rome, Italy
Unit root and cointegration tests for cross-sectionally correlated panels - Estimating regional production functions (assigned to theme
There is a plethora of studies of regional production functions using stationary panel data. Only some recent works consider non-stationary panel data. All of them assume the hypothesis of cross-section independence. Here, we claim that the independence assumption is too strong when regional data are used. In this paper, the cross-section independence assumption is released and cross-sectional dependence is assumed. First, unit roots and cointegration properties of the panel dataset are properly investigated by using newly developed tests for cross-sectionally dependent panels. Second, dynamic OLS (DOLS) and recent regression models for cross-sectionally correlated panels are used to estimate the cointegrated relationship between value added, physical and human capital, for Italian regions over the period 1970-1998.
submitted 2005-04-28 16:57:05.660
final paper
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