Testing the long-run implications of the neoclassical stochastic growth model: A panel-based unit root investigation for West German Lander, 1970-1994

The purpose of this paper is to provide additional evidence on the neoclass ical stochastic growth model in the light of recent empirical findings whic h mainly reject its long-run implications. The panel-based unit root tests proposed by Levin and Lin (1993) are applied to investigate the time series properties of the log ratios of consumption and investment to output using annual data from 1970 to 1994 for eleven West German Lander. In accordance with the results of previous studies the empirical findings are generally not favorable for the neoclassical stochastic growth model.