CPR Working Paper Series No. 5

Testing the Stability of a Production Function with Urbanization as a Shift Factor: An Application of Non-Stationary Panel Data Techniques

Suzanne McCoskey and Chihwa Kao

March 1999

Abstract:  Urban economists have long sought to explain the relationship between urbanization levels and output. In this paper we revisit this question and test the long run stability of a production function with urbanization using non-stationary panel data techniques. Our results show that a long run relationship between urbanization output per worker and capital per worker cannot be rejected for either our sample or 30 developing countries or our sample of 22 developed countries. In addition, we estimate the long run average effects on GPDW of urbanization and capital. These results offer new insights and potential for dynamic urban models rather than the simple cross-section approach.

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