Econometric Analysis of the Panel Unit Root : Case Where Cross Section Dimension is Finite

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In this project we propose a new approach for testing a unit root in dynamic panel data models. Its special features are twofold : Firstly, we intentionally ignore the constant term of the model, when estimating the model. Secondly, we approximate the distribution of the test statistic as normal even in finite samples. Our finite sample experiments show that the normal approximation works nicely and the suppressed constant term method appears quite effective in improving the power of the test.