IDEAS home Printed from https://ideas.repec.org/p/unm/umamet/2005051.html
   My bibliography  Save this paper

Panel cointegration testing in the presence of common factors

Author

Listed:
  • Gengenbach, C.

    (Quantitative Economics)

  • Palm, F.C.

    (Quantitative Economics)

  • Urbain, J.R.Y.J.

    (Quantitative Economics)

Abstract

Panel unit root and no-cointegration tests that rely on cross-sectional independence of the panel unit experience severe size distortions when this assumption is violated, as has e.g. been shown by Banerjee, Marcellino and Osbat (2004, 2005) via Monte Carlo simulations. Several studies have recently addressed this issue for panel unit root test using a common factor structure to model the cross-sectional dependence, but not much work has been done yet for panel no-cointegration tests. This paper proposes a model for panel no-cointegration using an unobserved common factor structure, following the work on Bai and Ng (2004) for panel unit roots. The model enables us to distinguish two important cases: (i) the case when the non-stationarity in the data is driven by a reduced number of common stochastic trends, and (ii) the case where we have common and idiosyncratic stochastic trends present in the data. We study the asymptotic behavior of some existing, residual-based panel no-cointegration, as suggested by Kao (1999) and Pedroni (1999, 2004). Under the DGP used, the test statistics are no longer asymptotically normal, and convergence occurs at rate T rather than √ NT as for independent panels. We then examine the properties of residual-based tests for nocointegration applied to defactored data from which the common factors and individual components have been extracted.

Suggested Citation

  • Gengenbach, C. & Palm, F.C. & Urbain, J.R.Y.J., 2005. "Panel cointegration testing in the presence of common factors," Research Memorandum 051, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    • Handle: RePEc:unm:umamet:2005051
    DOI: 10.26481/umamet.2005051
    as

    Download full text from publisher

    File URL: https://cris.maastrichtuniversity.nl/ws/files/1141593/guid-cb829d2a-eafd-41ab-9d7a-a5acb562f8fe-ASSET1.0.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.26481/umamet.2005051?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. A. Sargeant & M. MOHAMAD, 1999. "Business Performance in the UK Hotel Sector - Does it Pay to be Market Oriented?," The Service Industries Journal, Taylor & Francis Journals, vol. 19(3), pages 42-59, July.
    2. Danny Miller, 1986. "Configurations of strategy and structure: Towards a synthesis," Strategic Management Journal, Wiley Blackwell, vol. 7(3), pages 233-249, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cécile Fonrouge & Cécile Ayerbe, 2005. "Les transitions entre innovations : études de cas et proposition d'une grille d'interprétation," Post-Print halshs-00696111, HAL.
    2. Lahoucine Outolba & Abdelhaq Lahfidi, 2021. "Success factors of very small businesses in regulated context: Case of Moroccan insurance brokers," Post-Print hal-03363167, HAL.
    3. José Pla-Barber & Cristina Villar & German Benito-Sarriá, 2020. "Configurational Theory in Traditional Manufacturing Industries: A New Model of High-Performing Small and Medium-Sized Enterprises," Sustainability, MDPI, vol. 12(17), pages 1-16, August.
    4. Cong Cheng & Zefeng Miao, 2025. "Leveraging digital connectivity for innovation performance: a fsQCA study on Chinese high-tech manufacturing firms," Palgrave Communications, Palgrave Macmillan, vol. 12(1), pages 1-12, December.
    5. Zoltan J. Acs & Saul Estrin & Tomasz Mickiewicz & László Szerb, 2018. "Entrepreneurship, institutional economics, and economic growth: an ecosystem perspective," Small Business Economics, Springer, vol. 51(2), pages 501-514, August.
    6. Samuel Adomako & Kwabena Frimpong & Joseph Amankwah-Amoah & Francis Donbesuur & Robert A. Opoku, 2021. "Strategic Decision Speed and International Performance: The Roles of Competitive Intensity, Resource Flexibility, and Structural Organicity," Management International Review, Springer, vol. 61(1), pages 27-55, March.
    7. László Szerb & Éva Komlósi & Balázs Páger, 2016. "Measuring Entrepreneurship and Optimizing Entrepreneurship Policy Efforts in the European Union," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 14(03), pages 08-23, October.
    8. Qiu, Lili & Olaru, Doina & Purchase, Sharon, 2024. "Fostering strategic synergy: Empirical insights on aligning innovation activities with competitive strategies," Technological Forecasting and Social Change, Elsevier, vol. 208(C).
    9. Bokrantz, Jon & Skoogh, Anders & Berlin, Cecilia & Wuest, Thorsten & Stahre, Johan, 2020. "Smart Maintenance: a research agenda for industrial maintenance management," International Journal of Production Economics, Elsevier, vol. 224(C).
    10. Veliyath, Rajaram & Ferris, Stephen P., 1997. "Agency influences on risk reduction and operating performance: An empirical investigation among strategic groups," Journal of Business Research, Elsevier, vol. 39(3), pages 219-230, July.
    11. Hardcopf, Rick & Gonçalves, Paulo & Linderman, Kevin & Bendoly, Elliot, 2017. "Short-term bias and strategic misalignment in operational solutions: Perceptions, tendencies, and traps," European Journal of Operational Research, Elsevier, vol. 258(3), pages 1004-1021.
    12. László Szerb, 2008. "The Examination of the Level of Entrepreneurship in Eight Central Eastern European Countries," Proceedings-6th International Conference on Management, Enterprise and Benchmarking (MEB 2008), in: György Kadocsa (ed.),6th International Conference on Management, Enterprise and Benchmarking MEB 2008-Proceedings, pages 69-83, Óbuda University, Keleti Faculty of Business and Management.
    13. Tina C. Ambos & Julian Birkinshaw, 2010. "How Do New Ventures Evolve? An Inductive Study of Archetype Changes in Science-Based Ventures," Organization Science, INFORMS, vol. 21(6), pages 1125-1140, December.
    14. Yang Lu & Peixin Zuo & José C. Alves & Jinliang Wang, 2023. "Unlocking the relationship between entrepreneurial orientation and international performance: A systematic review," Journal of International Entrepreneurship, Springer, vol. 21(4), pages 464-504, December.
    15. Bertels, K. & Jacques, J. M. & Neuberg, L. & Gatot, L., 1999. "Qualitative company performance evaluation: Linear discriminant analysis and neural network models," European Journal of Operational Research, Elsevier, vol. 115(3), pages 608-615, June.
    16. Thomas W. Ferratt & Ritu Agarwal & Carol V. Brown & Jo Ellen Moore, 2005. "IT Human Resource Management Configurations and IT Turnover: Theoretical Synthesis and Empirical Analysis," Information Systems Research, INFORMS, vol. 16(3), pages 237-255, September.
    17. Heiberg, Jonas & Truffer, Bernhard & Binz, Christian, 2022. "Assessing transitions through socio-technical configuration analysis – a methodological framework and a case study in the water sector," Research Policy, Elsevier, vol. 51(1).
    18. Acquaah, Moses & Yasai-Ardekani, Masoud, 2008. "Does the implementation of a combination competitive strategy yield incremental performance benefits? A new perspective from a transition economy in Sub-Saharan Africa," Journal of Business Research, Elsevier, vol. 61(4), pages 346-354, April.
    19. Alperovych, Yan & Hübner, Georges, 2011. "Explaining returns on venture capital backed companies: Evidence from Belgium," Research in International Business and Finance, Elsevier, vol. 25(3), pages 277-295, September.
    20. Sharda, Kirti, 2009. "Strategic Orientation of Outsourcing Firms:Demystifying Key Differentiators," IIMA Working Papers WP2009-12-03, Indian Institute of Management Ahmedabad, Research and Publication Department.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:unm:umamet:2005051. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Andrea Willems or Leonne Portz (email available below). General contact details of provider: https://edirc.repec.org/data/meteonl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.