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Convergence Of Metropolitan House Prices In South Africa: A Re-Examination Using Efficient Unit Root Tests

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  • Sonali DAS , Rangan GUPTA
  • Patrick A. KAYA

Abstract

This paper analyzes whether the Law of One Price (LOOP) holds in the housing market of five metropolitan areas of South Africa, namely Cape Town, Durban, Greater Johannesburg, Port Elizabeth/Uitenhage and Pretoria. We test the existence of LOOP using the efficient unit root tests proposed by Elliott et al. (1996) [DF-GLS] and Elliott (1999) [DF-GLSu] based on monthly data on residential property prices covering the period of 1967:01 to 2009:03 for the large-, medium and small-middle segments of the housing market. Based on the DF-GLSu test, we find overwhelming evidence of the existence of LOOP in twelve of the fifteen cases, especially as the sample periods include more recent data. More importantly, our results are in sharp contrast with those obtained by Burger and Van Rensburg (2008) using quarterly data to based on the Im, Pesharan and Shin (IPS, 2003) test, which are, in turn, shown to be highly sensitive to frequency of the data and temporal aggregation. With the rejection of the null hypothesis of unit roots, based on panel data tests, not providing sufficient evidence to conclude that all the series in the panels have a unit root or not, more reliability should be placed on our results obtained from the efficient unit root tests.

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Bibliographic Info

Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 10 (2010)
Issue (Month): 1 ()
Pages:

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Handle: RePEc:eaa:aeinde:v:10:y:2010:i:1_12

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Related research

Keywords: Efficient Unit Root Tests; House Prices; Law of One Price; Price Convergence; Single Market;

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References

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  1. Axel Dreher & Tim Krieger, 2005. "Do gasoline prices converge in a unified Europe with non-harmonized tax rates?," KOF Working papers 05-114, KOF Swiss Economic Institute, ETH Zurich.
  2. Karlsson, Sune & Löthgren, Mickael, 1999. "On the power and interpretation of panel unit root tests," Working Paper Series in Economics and Finance 299, Stockholm School of Economics.
  3. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, October.
  4. Francis Ahking, 2003. "Efficient unit root tests of real exchange rates in the post-Bretton Woods era," Economics Bulletin, AccessEcon, vol. 6(7), pages 1-12.
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Cited by:
  1. Goodness C. Aye & Samrat Goswami & Rangan Gupta, 2012. "Metropolitan House Prices In India: Do They Converge?," Working Papers 201220, University of Pretoria, Department of Economics.
  2. Roula Inglesi-Lotz & Rangan Gupta, 2011. "Relationship between House Prices and Inflation in South Africa: An ARDL Approach," Working Papers 201130, University of Pretoria, Department of Economics.
  3. Beatrice D. Simo-Kengne & Manoel Bittencourt & Rangan Gupta, 2011. "House Prices and Economic Growth in South Africa: Evidence from Provincial-Level Data," Working Papers 201116, University of Pretoria, Department of Economics.
  4. Luis A. Gil-Alana & Goodness C. Aye & Rangan Gupta, 2012. "Testing for Persistence with Breaks and Outliers in South African House Prices," Faculty Working Papers 20/12, School of Economics and Business Administration, University of Navarra.

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