Simple Tests for Cointegration in Dependent Panels with Structural Breaks

This paper develops two very simple tests for the null hypothesis of no cointegration in panel data. The tests are general enough to allow for heteroskedastic and serially correlated errors, unit specific time trends, cross-sectional dependence and an unknown structural break in both the intercept and slope of the cointegrated regression, which may be located at different dates for different units. The limiting distributions of the tests are derived, and are 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 tests. In our empirical application, we provide new evidence concerning the purchasing power parity hypothesis