Least Squares Asymptotics in Spurious and Cointegrated Panel Regressions with Common and Idiosyncratic Stochastic Trends*

This article makes an analytical study of the effects of the presence of both common and idiosyncratic stochastic trends on the pooled least squares estimator. The results suggest that the usual result of asymptotic normality depends critically on the absence of the common stochastic trend.     

An IV Test for a Unit Root in Generally Trending and Correlated Panels

This paper proposes an IV‐based panel unit root test that is general enough to accommodate general error serial and cross‐section dependence, and a potentially nonlinear deterministic trend function. These allowances make the new test one of the most general around. It is also very simple to implement. Indeed, the IV statistic is asymptotically invariant to not only to all nuisance parameters characterizing the dependence of the errors and the true trend function, but also the deterministic specification of the fitted test regression.     

Estimating Cointegrated Panels with Common Factors and the Forward Rate Unbiasedness Hypothesis

This article proposes a bias-adjusted estimator for use in cointegratedpanel regressions when the errors are cross-sectionally correlatedthrough an unknown common factor structure. The asymptotic distributionof the new estimator is derived and is examined in small samplesusing Monte Carlo simulations. For the estimation of the numberof factors, several information-based criteria are considered.The simulation results suggest that the new estimator performswell in comparison to existing ones. In our empirical application,we provide new evidence suggesting that the forward rate unbiasednesshypothesis cannot be rejected.     

A Simple Test for Cointegration in Dependent Panels with Structural Breaks*

This paper develops a very simple test for the null hypothesis of no cointegration in panel data. The test is general enough to allow for heteroskedastic and serially correlated errors, unit‐specific time trends, cross‐sectional dependence and unknown structural breaks in both the intercept and slope of the cointegrated regression, which may be located at different dates for different units. The limiting distribution of the test is derived, and is found to be normal and free of nuisance parameters under the null. A small simulation study is also conducted to investigate the small‐sample properties of the test. In our empirical application, we provide new evidence concerning the purchasing power parity hypothesis.     

Data Dependent Endogeneity Correction in Cointegrated Panels*

This paper examines the small‐sample performance of several information based criteria that can be employed to facilitate data dependent endogeneity correction in estimation of cointegrated panel regressions. The Monte Carlo evidence suggests that the criteria generally perform well but that there are differences of practical importance. In particular, the evidence suggests that, although the estimators of the cointegration vectors generally perform well, the criterion with best small‐sample performance also leads to the best performing estimator.     

Language ability and entrepreneurship education: Necessary skills for Europe’s start-ups?

Language ability and entrepreneurial education are seen as essential resources for start-ups operating in intensified landscapes of internationalisation and globalisation. Deemed as the necessary skills for corporate effectiveness vis-à-vis rivals, this paper responds to calls for increased understandings of cultural components as vital to entrepreneurship and the product of institutional forces. Thus, it explores (a) the impact language ability has on start-up expansion; (b) the perceptions of international relations as based on language ability as a tool for cross-cultural communication; and (c) the role of educational context from the entrepreneurs’ perspective. Based on interviews from European online start-ups across three discrete contexts—Finland, Portugal and Sweden—it concludes that contextual trends regarding language and education are founded upon the cultural-cognitive and normative pillars of institutionalisation. Further, by combining actor-context perspectives, it poses that language ability and education are resources borne from the domestic environment which positively moderate the start-up’s international success. Nevertheless, the notion of learnt entrepreneurship remains contested. Taken together, this study contributes by offering deeper insight into the role of context on entrepreneurial tendencies by combining resource and institutional perspectives.     

Fixed effects demeaning in the presence of interactive effects in treatment effects regressions and elsewhere

The present paper shows that cross-section demeaning with respect to time fixed effects is more useful than commonly appreciated, in that it enables consistent and asymptotically normal estimation of interactive effects models with heterogeneous slope coefficients when the number of time periods, T, is small and only the number of cross-sectional units, N, is large. This is important when using OLS but also when using more sophisticated estimators of interactive effects models whose validity does not require demeaning, a point that to the best of our knowledge has not been made before in the literature. As an illustration, we consider the problem of estimating the average treatment effect in the presence of unobserved time-varying heterogeneity. Gobillon and Magnac (2016) recently considered this problem. They employed a principal components-based approach designed to deal with general unobserved heterogeneity, which does not require fixed effects demeaning. The approach does, however, require that T is large, which is typically not the case in practice, and the results reported here confirm that the performance can be extremely poor in small-T samples. The exception is when the approach is applied to data that have been demeaned with respect to fixed effects.     

Panicca: Panic on Cross‐Section Averages

The cross‐section average (CA) augmentation approach of Pesaran (A simple panel unit root test in presence of cross‐section dependence. Journal of Applied Econometrics 2007; 22 : 265–312) and Pesaran et al. (Panel unit root test in the presence of a multifactor error structure. Journal of Econometrics 2013; 175 : 94–115), and the principal components‐based panel analysis of non‐stationarity in idiosyncratic and common components (PANIC) of Bai and Ng (A PANIC attack on unit roots and cointegration. Econometrica 2004; 72 : 1127–1177; Panel unit root tests with cross‐section dependence: a further investigation. Econometric Theory 2010; 26 : 1088–1114) are among the most popular ‘second‐generation’ approaches for cross‐section correlated panels. One feature of these approaches is that they have different strengths and weaknesses. The purpose of the current paper is to develop PANICCA, a combined approach that exploits the strengths of both CA and PANIC. Copyright © 2015 John Wiley & Sons, Ltd.     

A new poolability test for cointegrated panels

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 small samples. An empirical application to the monetary exchange rate model is also provided. Copyright © 2009 John Wiley & Sons, Ltd.