IS THE CONSUMPTION–INCOME RATIO STATIONARY? EVIDENCE FROM LINEAR AND NON‐LINEAR PANEL UNIT ROOT TESTS FOR OECD AND NON‐OECD COUNTRIES*

This paper applies recently developed heterogeneous non‐linear and linear panel unit root tests that account for cross‐sectional dependence to 24 OECD and 33 non‐OECD countries' consumption–income ratios over the period 1951–2003. We apply a recently developed methodology that facilitates the use of panel tests to identify which individual cross‐sectional units are stationary and which are non‐stationary. We find that the majority (78 per cent) of the series are non‐stationary with slightly fewer non‐OECD countries' (74 per cent) series exhibiting a unit root than OECD countries (83 per cent).