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Unit root and cointegration tests for cross-sectionally correlated panels - Estimating regional production functions

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Author Info
Roberto Basile ()
Sergio Destefanis ()
Mauro Costantini ()

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Abstract

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.

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa05p171.

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Date of creation: Aug 2005
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Handle: RePEc:wiw:wiwrsa:ersa05p171

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  1. Floro Ernesto Caroleo – Gianluigi Coppola, 2005. "The Impact of the Institutions on Regional Unemployment Disparities," CELPE Discussion Papers 98, CELPE (Centre of Labour Economics and Economic Policy), University of Salerno, Italy. [Downloadable!]
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