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Baltagi study on root tests and spatial dependence published in Journal of Applied Econometrics

Feb 28, 2007

Panel Unit Root Tests and Spatial Dependence

Badi H. Baltagi, Georges Bresson & Alain Pirotte

Journal of Applied Econometrics, February 2007

Badi H. Baltagi

Badi H. Baltagi


This paper studies the performance of panel unit root tests when spatial effects are present that account for cross-section correlation. Monte Carlo simulations show that there can be considerable size distortions in panel unit root tests when the true specification exhibits spatial error correlation. These tests are applied to a panel data set on net real income from the 1000 largest French communes observed over the period 1985–1998.