In this paper we consider the issue of unit root testing in cross-sectionally dependent panels. We consider panels that may be characterized by various forms of cross-sectional dependence including (but not exclusive to) the popular common factor framework. We consider block bootstrap versions...

In spite of the increased use of factor-augmented regressions in recent years, little is known regarding the relative merits of the two main approaches to estimation and inference, namely, the cross-sectional average and principal component estimators. By providing a formal comparison of the...