Investigating the stationarity hypothesis of Gross Domestic Product per capita in Central and Eastern Europe and Commonwealth of Independent State countries: Evidence using Fourier based panel KPSS test

• Published date: 01 August 2020
• DOI: http://doi.org/10.1002/pa.2104
• Date: 01 August 2020

ACADEMIC PAPER

Investigating the stationarity hypothesis of Gross Domestic

Product per capita in Central and Eastern Europe and

Commonwealth of Independent State countries: Evidence

using Fourier based panel KPSS test

Aviral Kumar Tiwari

1,2

| Hemachandra Padhan

3

| Abdulkareem Alhassan

4,5

|

Festus Victor Bekun

6,7

1

Rajagiri Business School, Rajagiri Valley

Campus, Kochi, India

2

Administration, Higher School of Economics and

Management, South Ural State University, Lenin

Prospect 76, Chelyabinsk, Russian Federation

3

Department of Humanities and Social

Sciences, Indian Institute of Technology (IIT)

Madras, Chennai, India

4

Faculty of Business and Economics, Department

of Economics, Famagusta, Eastern Mediterranean

University, North Cyprus, Turkey

5

Department of Economics, Federal University

Lafia, Lafia, Nigeria

6

Faculty of Economics Administrative and

Social sciences, Istanbul Gelisim University,

Istanbul, Turkey

7

Department of Accounting, Analysis and Audit,

School of Economics and Management, South

Ural State University, Chelyabinsk, Russi a

Correspondence

Festus Victor Bekun, Faculty of Economics

Administrative and Social sciences, Istanbul

Gelisim University, Istanbul, Turkey.

Email: festus.bekun@emu.edu.tr

Using annual data from 1985 to 2016, the study conducts a robust panel stationarity

analysis by accounting for cross-sectional dependency, sharp breaks and gradual

structural shifts for per capita Gross Domestic Product (PCGDP) of Central and East-

ern Europe (CEE) and Commonwealth of Independent State (CIS) countries. The

empirical finding reveals that PCGDP at different Fourier frequency and model struc-

ture (trend or constant) for both CEE and CIS countries are unit root process. More-

over, the PCGDP of CEE and CIS countries are nonmean reverting in the presence of

cross-sectional dependence and gradual structural shifts which previous studies using

well-known panel stationarity estimators fail to find. Policy insights are highlighted in

the conclusion section.

1|BACKGROUND OF THE STUDY

This study investigates the stationarity and asymptotic properties of per

capita Gross Domestic Product (PCGDP) for the case of Central and East-

ern Europe (CEE) and Commonwealth of Independent State (CIS) coun-

tries. The CEE countries are capturing 4% growth rate of the world.

1

The

CEE countries not only accelerate growth rate, but also focus on innova-

tions through investment in research and development in solving struc-

tural problems particularly unemployment and poverty. On the other side,

CIS countries are contributing 4.9% to the world Gross Domestic Product

(GDP) in term of PPP.

2

The current study also seeks to conduct a more

robust and powerful test of the null hypothesis of stationarity against an

alternative of nonstationarity (unit root) for PCGDP in both CEE and CIS

countries by the adoption of Fourier panel statistics

3

Fp(k). Furthermore,

we also conduct Im, Lee, and Tieslau (2005) and Hadri and Rao (2008)

proposed panel LM unit root tests and in comparison, with the Fourier

approximation test that account for cross-sectional dependence (CSD)

and gradual structural shifts for CEE and CIS countries.

The choice of CIS and CEE countries is motivated by the dynamic

characterization in the blocs.

4

The CIS countries are an offshoot of

the breakup of the Soviet Union. Many of the countries in the panel

of CIS countries are in their transition period towards the market-

based economy. However, there is still a noticeable disparity in the

individual countries in terms of economic and development dynamics.

For instance, Russian federation economic performance overruns

Tajikistan and Kazakhstan in same bloc. While on the other hand, for

the CEE countries, there exist similarity in their economic nature as

most member states have undergone significant political and

Received: 13 September 2019 Revised: 26 November 2019 Accepted: 26 February 2020

DOI: 10.1002/pa.2104

J Public Affairs. 2020;20:e2104. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons, Ltd 1of13

https://doi.org/10.1002/pa.2104