Does Stationarity Characterize Real GDP Movements? Results from Non-Linear Unit Root Tests

Using non-linear unit root tests this paper investigates non- stationarity of real GDP per capita for seven OECD countries over the period 1900-2000. Non-linear unit root tests are more powerful than traditional ADF statistics in rejecting the null unit root hypothesis. To this end we adopt a first order Fourier approximation that may capture many features of non-linear adjustment. Empirical results show that, contrary to what the linear ADF statistics suggest, stationarity characterizes six out of the seven countries. This finding stands at variance with other recent studies which conclude that movements in real GDP per capita can be characterized as a non-stationary process.Unit root tests;non-linear model;real GDP

Non-Sationarity in the Consumption-Income Ratio: Further Evidence from Panel and Assymetric Unit Root Tests

In this paper we test the stationarity properties of the consumption-income ratio for a sample of 14 European Union countries over the period 1960-1999 utilizing recent advances in panel unit root and asymmetric unit root tests. We find that a failure to take account of asymmetries, would imply I(1) consumption income ratio although unit root tests based on TAR models indicate stationarity in at least one regime. This result provides more evidence in relation to Sarantis and Stewart (Economics Letters, 1999) who found that the consumption-income ratio is I(1).Consumption-Income Ratio Panel Unit Root Tests Assymetric Unit Root Tests TAR Models

Efficiency measurement with nonstationary variables: an application of panel cointegration techniques

In this paper, we apply panel cointegration tests and estimation techniques to obtain efficiency measures when it is uncertain whether the underlying technological relationship is structural or spurious due to possible non-stationarity of the data. We illustrate the dangers of efficiency measurement with panel data when integration and cointegration are not taken into account. We apply these techniques to efficiency measurement in U.S. airlines and find striking differences compared to results obtained with the traditional approach.Cointegration

Smooth Breaks and Nonlinear Mean Reversion: Post-Bretton Woods Real Exchange Rates

The recent literature on Purchasing Power Parity (PPP) has emphasized the role of two phenomena that may lead to the rejection of the PPP hypothesis: structural breaks and nonlinear adjustment induced by transaction costs. These two hypotheses are analyzed separately in the literature. We develop tests for unit roots that account jointly for structural breaks and nonlinear adjustment. Structural breaks are modeled by means of a Fourier function that allows for infrequent smooth temporary mean changes and is hence compatible with long-run PPP. Nonlinear adjustment is modeled by means of an ESTAR model. Our tests present good finite sample properties. The tests are applied to a set of 15 OECD countries’ RERs and are able to reject the null of a unit root in 14 cases. The breaks are usually associated with the great appreciation and later depreciation of the dollar in the 1980s and the ESTAR adjustment appears to play an important role.Fourier model; ESTAR; nonlinear adjustment; PPP;

Democratic Reforms, Foreign Aid and Production Inefficiency

We construct an endogenous growth model and we employ empirical analysis to investigate the link between foreign aid and production efficiency in the presence of different political orientations of the recipient country. Using a panel of 124 countries from 1971 to 2007 and the production frontier toolbox, we document that regardless of income stratum, decade and type, foreign aid is associated with higher production inefficiency and that this inefficiency is reduced considerably if countries switch to democratic governance. Our study contributes to the aid literature by pointing to the institutional enhancement of the recipient countries through initially the adoption of democratic ruling practices.Democratic reforms, foreign aid, production inefficiency, translog function

Do financial reforms help stabilize inequality?

We explore the relationship between financial reforms and income inequality using a panel of 29 countries over 1975-2005. We extend panel unit root tests to allow for the presence of some financial-reform covariates and further suggest an associated but novel, semi-parametric approach. Results demonstrate that although both gross and net Gini indices follow a unit root process, this picture can change when financial reform indices are accounted for. In particular, whilst gross Gini coefficients are generally not stabilized by financial reforms, net measures are (more likely to be). Thus financial reforms enacted in the presence of a strong safety net would seem preferable

Efficiency in European railways: Not as inefficient as one might think

The paper studies technical inefficiency in the railway systems of ten countries of the European Union. A new approach is used which permits the disaggregation of inefficiency by factor of production to result in estimates of input-specific technical inefficiency. The cost structure is represented using a generalized McFadden flexible functional form. Policy implications and guidelines for rational decision making in the railway sector, are discussed in detail.technical efficiency; symmetric generalized McFadden form; flexible functional forms; duality; input-specific technical efficiency; European railways

Efficiency, Inefficiency and the MENA Frontier

In a stochastic frontier setting, we examine technical efficiency in the Middle East and North Africa (MENA). Evidence suggests that in addition to economic indicators, political and social ones play a key role in development and frontier technical efficiency profiles. The MENA have been characterized by increasing economic efficiency over time but with marked polarization. The paper analyses and nest many key hypotheses in the literature e.g., the contributions of religion, of natural resources, demographic pressures, human capital etc. The originality of our contribution is the use of a large data set (including principal components), and extensive robustness checks. The paper should set a comprehensive benchmark and cross check for related studies of development technical efficiency

Are US regional incomes converging? A nonlinear perspective

This article deviates from the current practice of regional convergence by allowing output convergence to follow a non-linear process. In this scenario all standard linear unit root tests have low power, thus frequently leading to misguided conclusions. In light of this we adopt a unit root test based on a non-linear model which tests the null hypothesis of a unit root against a non-linear alternative. Our findings overwhelmingly support the tendency of US regions to converge over time