The sustainability of trade balances in sub-Saharan Africa: panel cointegration tests with cross-section dependence

Abstract

This article investigates the sustainability of trade balances in the sub-Saharan African regions, using both the panel unit root (Im–Pesaran–Shin (IPS)) test proposed by Im et al. (2003) and the cross-sectionally augmented version of the IPS (Pesaran Cross-sectional IPS (CIPS)) test suggested by Pesaran (2007), where the former test is based on the assumption of cross-section independence and the latter actually considers cross-section independence. Although the empirical results based on the IPS test indicate that the balance of trade in the sub-Saharan African regions is sustainable, the empirical results of the CIPS test reveal that it is not sustainable. Since Cross-section Dependence (CD) was recognized using the CD test developed by Pesaran (2004), there is a possibility that the empirical results based on the IPS test are spurious.

Keywords:

• sustainability of trade balances
• sub-Saharan Africa
• panel cointegration tests
• cross-section dependence

JEL Classification:

• O11
• F40

Notes

¹All calculations were conducted using the R version 2.9.2 (R Development Core Team, 2009), Ox version 4.1 (Doornik, 2006) and Eviews 6.