Characterizing growth instability: new evidence on unit roots and structural breaks in countries' long run trajectories

Emanuele Russo*, Neil Foster-McGregor

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

In this paper we investigate whether long run time series of income per capita are better described by a trend-stationary model with few structural changes or by unit root processes in which permanent stochastic shocks are responsible for the observed growth discontinuities. For a group of advanced and developing countries in the Maddison database, we employ a unit root test that allows for an unspecified number of breaks under the alternative hypothesis (up to some ex ante determined maximum). Monte Carlo simulations studying the finite sample properties of the test are reported and discussed. When compared with previous findings in the literature, our results show less evidence against the unit root hypothesis. We find even fewer rejections when relaxing the assumption of Gaussian shocks. Our results are broadly consistent with the implications of evolutionary macro models which posit frequent growth shifts and fat-tailed distribution of aggregate shocks.
Original languageEnglish
Number of pages44
JournalJournal of Evolutionary Economics
DOIs
Publication statusE-pub ahead of print - 21 Apr 2021

Keywords

  • Long-run growth
  • Structural breaks
  • Unit roots
  • MULTIPLE TREND BREAKS
  • PER-CAPITA OUTPUT
  • ECONOMIC-GROWTH
  • TIME-SERIES
  • GREAT CRASH
  • TESTS
  • CONVERGENCE
  • EMPIRICS
  • POLICY
  • UNEMPLOYMENT

Cite this