Panel Cointegration Tests Based on Westerlund (2007).

Westerlund: Panel Cointegration Testing in R

Westerlund is an R package implementing a functional approximation of the four panel cointegration tests developed by Westerlund (2007). The Westerlund test evaluates the null hypothesis of no cointegration by testing whether the error-correction term in a conditional panel ECM is equal to zero. If the null is rejected, there is evidence of a long-run equilibrium relationship between the variables.

Key Features

The package replicates the logic of the Westerlund (2007) methodology, including:

• Four Test Statistics: Computes $G_t$, $G_a$, $P_t$, and $P_a$.
• Flexible Dynamics: Allows for unit-specific lag and lead lengths.
• Automated Selection: Built-in AIC/BIC selection logic for optimal lag and lead lengths.
• Bootstrap Procedure: Robust p-values to handle cross-sectional dependence.
• Kernel Estimation: Bartlett kernel long-run variance estimation.
• Gap Handling: Strict time-series continuity checks to ensure valid econometric results.

Installation

You can install the development version of Westerlund from GitHub using the devtools package:

# Install devtools if you haven't already
# install.packages("devtools")

# Install Westerlund
devtools::install_github("bosco-hung/Westerlund/R", build_vignettes = TRUE)

## Qucik Start

library(Westerlund)

Ensure data is sorted by ID and Time

results <- westerlund_test( data = my_data, yvar = "ln_gdp", xvars = c("ln_energy", "ln_capital"), idvar = "country", timevar = "year", constant = TRUE, trend = FALSE, lags = c(1, 3), # AIC search between 1 and 3 lags leads = c(0, 2), # AIC search between 0 and 2 leads bootstrap = 100, # Run 100 bootstrap replications lrwindow = 3 # Bartlett kernel window size )

View the results table

print(results)

## References
Westerlund, J. (2007). Testing for Error Correction in Panel Data. Oxford Bulletin of Economics and Statistics, 69(6), 709-748.

Persyn, D., & Westerlund, J. (2008). Error-Correction-Based Cointegration Tests for Panel Data. Stata Journal, 8(2), 232-241.