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My panel regression model is as follows: $$Y_{it}=PS_{it}+PF_{it}+EF_{it}+ \mathbf X_{it}+e_{it}$$ where

  • $i$ : country,

  • $t$ : year,

  • $Y_{it}$ : GDP per capita,

  • $PS_{it}$ : Political stability,

  • $PF_{it}$ : Political Freedom,

  • $EF_{it}$ : Economic Freedom,

  • $e_{it}$ : error term.

There are other independent variables as well in equation ($\mathbf X_{it}$). My question is that we normally check stationary for time series data and I want to know do I need to check stationarity for the panel-data case?. I further explain that I am using heritage foundation aggregate economic freedom index and freedom House political freedom index as independent variable in my analysis. Do I also need to check both indexes stationary?

mpiktas
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malik fahim
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  • Perhaps my answer to this question, http://stats.stackexchange.com/questions/68425/how-to-determine-correlation-between-stationary-and-non-stationary-time-series/68592#68592 may help you. – Alecos Papadopoulos Sep 30 '13 at 10:39
  • How long are your time series? – mpiktas Sep 30 '13 at 10:45
  • respected fellow my data is panel data from 1994-2012.i already applied the panel unit root test on my data and find that all series are integrated of order(1).both indexes are consist of many variables and aggregate index is simply the average of these variables. – malik fahim Oct 01 '13 at 01:16

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