Giorgia Marini
This paper enlarges on Gutierrez’s results on the power of panel cointegration tests. By a comparison of power of panel cointegration tests, we show how the choice of most powerful test depends on the values of the sample statistics. Country-by-country and panel stationarity and cointegration tests are performed on a panel of 20 OECD countries over the period 1971-2004. Residual-based tests and a cointegration rank test in the system of health care expenditure and GDP are used to test cointegration. Asymptotic normal distribution of these tests allows a straightforward comparison for some values of the sample statistics, residual-based and rank tests are not directly comparable as the power of the residual-based tests oscillates; for other values of the sample statistics, the rank test is more powerful than the residualbased tests. This suggests that a clear-cut conclusion on the most powerful test cannot be reached a priori.