This note analyzes the local asymptotic power properties of a test
proposed by Breitung (2000, in B. Baltagi
(ed.), Nonstationary Panels, Panel Cointegration, and
Dynamic Panels). We demonstrate that the Breitung test,
like many other tests (including point optimal tests) for panel unit
roots in the presence of incidental trends, has nontrivial power in
neighborhoods that shrink toward the null hypothesis at the rate of
where n and T are the
cross-section and time-series dimensions, respectively. This rate is
slower than the
rate claimed by Breitung. Simulation evidence documents the
usefulness of the asymptotic approximations given here.The authors thank Paolo Paruolo and a
referee for comments on an earlier version of the paper.
Phillips acknowledges partial support from a Kelly Fellowship
and the NSF under grant SES 04-142254. Perron acknowledges
financial support from FQRSC, SSHRC, and MITACS.