This paper proposes a new test of the null hypothesis that the parameters in a cointegrated panel data regression are equal across the cross-section. The asymptotic distribution of the new test statistic is derived and simulation results are provided to suggest that it performs very well in...

Thomas Piketty's Capital in the Twenty-First Century puts forth a logically consistent explanation for changes in income and wealth inequality patterns. However, while rich in data, the book provides no formal empirical testing for its theoretical causal chain. In this paper, I build a set of...

This paper is concerned with sphericity test for the two-way error components panel data model. It is found that the John statistic and the bias-corrected LM statistic recently developed by Baltagi et al. (2011, 2012), which are based on the within residuals, are not helpful under the present...

We provide various norm-based definitions of different types of cross-sectional dependence and the relations between them. These definitions facilitate to comprehend and to characterize the various forms of cross-sectional dependence, such as strong, semi-strong, and weak dependence. Then we...

This paper introduces a new test for error cross-sectional independence in large panel data models with exogenous regressors having heterogenous slope coefficients. The proposed statistic, LM_{RMT}, is based on the Lagrange Multiplier (LM) principle and the sample correlation matrix R_{N} of the...

This paper revisits the Lagrange multiplier type test for the null hypothesis of no cross-sectional dependence. We propose a unified test procedure and its power enhancement version, which show robustness for a wide class of panel model contexts. Specifically, the two procedures are applicable...

The curse of dimensionality refers to the difficulty of including all relevant variables in empirical applications due to the lack of sufficient degrees of freedom. A common solution to alleviate the problem in the context of open economy models is to aggregate foreign variables by constructing...

This paper considers testing the hypothesis that errors in a panel data model are weakly Cross-sectionally dependent (CD), using the exponent of cross-sectional dependence introduced recently in Bailey, Kapetanios and Pesaran (2012). It is shown that the implicit null of the CD test depends on...

The presence of cross-sectionally correlated error terms invalidates much inferential theory of panel data models. Recently work by Pesaran (2006) has suggested a method which makes use of cross-sectional averages to provide valid inference for stationary panel regressions with multifactor error...

This paper proposes a modified version of Swamy's test of slope homogeneity for panel data models where the cross section dimension (N) could be large relative to the time series dimension (T). The proposed test exploits the cross section dispersion of individual slopes weighted by their...