A Note on the Power of Panel Cointegration Tests-An Applicat | 46556

Health Economics & Outcome Research: Open Access

ISSN - 2471-268X


A Note on the Power of Panel Cointegration Tests-An Application to Health Care Expenditure and GDP

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.