Testing economic convergence in non-stationary panel

This paper emphasizes the role of Panel Analysis of Nonstationarity in the Idiosyncratic and Common components (PANIC) in purging effects of cross-country correlation and structural instability from the convergence equation. In doing so, we run some simulations to show that, in addition to controlling correlations, PANIC handles the presence of a single structural change naturally and then solves the problems of low power that it generates. Applications are also conducted using a sample of 20 OECD member countries and 20 countries in Sub-Saharan Africa.