Panel Data Unit Root testing: Overview

TL;DR

This paper reviews various methods for panel data unit root testing, including approaches for cross-sectional correlation, non-linearity, structural breaks, and short panels, along with software implementation links.

Contribution

It provides a comprehensive overview of modern panel unit root testing methods, highlighting recent advances and practical tools for researchers.

Findings

Discusses methods for cross-sectionally correlated panels

Includes testing approaches for non-linearity and structural breaks

Covers techniques suitable for short panels with limited time periods

Abstract

This review discusses methods of testing for a panel unit root. Modern approaches to testing in cross-sectionally correlated panels are discussed, preceding the analysis with an analysis of independent panels. In addition, methods for testing in the case of non-linearity in the data (for example, in the case of structural breaks) are presented, as well as methods for testing in short panels, when the time dimension is small and finite. In conclusion, links to existing packages that allow implementing some of the described methods are provided.