Panel Unit Root Tests and the Specification of Cross-sectional Dependence

Abstract

This paper analyzes, through Monte Carlo experiments, the robustness of several panel unit root tests to different specifications of the cross-sectional dependence. Since results show that the miss-specification of cross-correlation crucially affects the properties of the tests, a graphical approach is suggested in order to determine the model of dependence which is likely to have generated the original data.Panel unit root tests