| Abstract: |
This paper considers the Panel Vector Autoregressive Models of order 1
(PVAR(1)) with possibly spatially dependent error terms. We propose a simple
Method of Moments based cointegration test using the rank test of Kleibergen
and Paap (2006) for fixed number of time observations. The test is shown to be
robust to spatial dependence, cross-sectional and time series
heteroscedasticity as well as unbalanced panels. The main novelty of our
approach is that we fully exploit the "weakness" of the Anderson and Hsiao
(1982) moment conditions in construction of the new test. The finite-sample
performance of the proposed test statistic is investigated using the simulated
data. The results show that for most scenarios the method performs well in
terms of both size and power. The proposed test is applied to employment and
wage equations using Spanish firm data of Alonso-Borrego and Arellano (1999)
and the results show little evidence for cointegration. |