Unit Root and Structural Break Analysis of Selected Macroeconomic Variables in Pakistan

Abstract

Observing certain properties of Unit Root in the time series of macro-economic indicators have become a necessary pre-requisite for establishing order of integration. The study used conventional unit root tests that indicate level stationary or non stationary using annual data for Pakistan. Perron (1989) and Zivot and Andrews (1991) tests failed to reject the hypothesis of unit root even after the inclusion of structural break. Results showed that all variables witnessed the existence of structural break during 1970s. Lumsdaine and Papell (1997) test results after incorporating multiple structural breaks indicate M3, exports and saving show trend stationarity. The study concludes that shocks in economy have effected in a long run behavior of these variables and implications for economic growth.