Median-Unbiased Estimation in Panel Data: Methodology and Applications to the GDP Convergence and Purchasing Power Parity Hypotheses

This paper reviews the literature on the econometrics of median-unbiased estimation in panel data and provides methodological guidelines for its implementation. The method is then used to evaluate the well known GDP convergence and Purchasing Power Parity (PPP) hypotheses. In the first two examples, panel exactly median-unbiased estimates with yearly data show, respectively, fast conditional convergence rates of per capita income among the 48 USA contiguous states, and extremely slow convergence or non convergence of per capita GDP among the 32 Mexican states. In the third example, using monthly data for a sample of 14 developing countries, the results from panel exactly median-unbiased estimation show that the dynamics of real exchange rates is consistent with the PPP hypothesis, although this process is highly persistent.