Nonparametric Cointegration Tests for Price Convergence within the Greater Bay Area of China

Woo, Kai-Yin; Lee, Shu-Kam; Shum, Paul Kwok-ching

doi:10.1080/10971475.2021.2022838

Cited by 2 publications

(2 citation statements)

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“…Our results of rank tests for PPP in the form of Model II do not suffer the rank problem, which may however exist in the rank test for Model I, where not all ranked series move in the same direction. 6 To avoid the rank problem, Model I is reconfigured by arranging the variables as follows to ensure that all ranked series move in the same direction (Woo et al, 2022):…”

Section: Resultsmentioning

confidence: 99%

“…Our results of rank tests for PPP in the form of Model II do not suffer the rank problem, which may however exist in the rank test for Model I, where not all ranked series move in the same direction. To avoid the rank problem, Model I is reconfigured by arranging the variables as follows to ensure that all ranked series move in the same direction (Woo et al, 2022):

\text{Model}\unicode{x02007}{\rm{I}}^{\prime} :\unicode{x02007}{p}_{t}=\frac{{-\beta }_{0}}{{\beta }_{1}}+\frac{{e}_{t}}{{\beta }_{1}}+\frac{{\beta }_{2}}{{\beta }_{1}}{p}_{t}^{* }-\frac{{u}_{t}}{{\beta }_{1}}.

…”

Section: Resultsmentioning

confidence: 99%

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Tests of goods market integration between China and African BRI countries

Lee,

Shum,

Woo

2023

International Studies of Economics

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The Chinese Government has promulgated the “Belt and Road Initiative” (BRI) to increase trade flows and integrate goods markets between China and BRI countries. The validity of purchasing power parity (PPP) implies well‐integrated goods markets, a precondition for further economic convergence, and the next stage of economic integration in factor, service, and financial markets. Our study aims to examine the validity of the PPP and the extent of goods market integration between China and selected BRI countries in Africa. Since the functional form of the cointegrating relationship may not be exact or linear, we adopt the nonparametric rank tests for analysis without prior knowledge and specification of the functional form. We also address the rank problems that occur in multivariate rank tests. Our empirical results provide strong evidence of an unrestricted PPP relationship with reasonably strong evidence of nonlinearity in the data. We also find that some African BRI countries have experienced goods market integration with China during the second‐half period only. This indicates that the introduction of the BRI in 2013 and China's active involvement in African economic development through BRI projects are leading to enhanced goods market integration between China and Africa. The results indicate favorable prospects of closer economic cooperation in the factor, service, and financial markets to build a free trade area or common markets with BRI countries in Africa.

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Section: Resultsmentioning

confidence: 99%

“…Our results of rank tests for PPP in the form of Model II do not suffer the rank problem, which may however exist in the rank test for Model I, where not all ranked series move in the same direction. To avoid the rank problem, Model I is reconfigured by arranging the variables as follows to ensure that all ranked series move in the same direction (Woo et al, 2022):