Output fluctuations: transitory or permanent? the case of Latin America

This article investigates the time series properties of per capita real output for 19 Latin American Countries over the period 1965 to 2004. This empirical study examines the significance of contemporaneous correlations among cross sectional residuals using two newly developed tests. The tests find evidence of cross sectional dependence and induce us to use the SURADF and the CADF panel unit root tests, which allow for cross sectional dependence. The tests indicate that the real output in Latin American countries are characterized by a difference stationary process and output fluctuations seem to be permanent. These findings have important policy implications for these countries.