Panel Granger Causality

In this section, you will learn to carry out the Panel Granger Causality test in EViews 8. We will explain in detail about them in the following steps:

Let us assume, the name of the MS-Excel datasheet is "Panel-Data-Representation.xlsx". You have to upload this dataset in EViews. Follow the step-by-step guide to upload this dataset in Eiews 8:

Go to File -> Import -> Import from file...



Upon selecting the data, the following window will appear:



Once you click Next > , the following window will appear:



Once you click Next > , the following window will appear:



Once you click Finish, the following window will appear:



Now in this window, you can see that all the five variables (N, Y, EC, PT, and POP) are uploaded. All the variable names are in lower-case letters. Apart from the variables, you will also find the CODE, YEAR, dateid, c, and resid. You will not require these components for this test. This confirms that the data has been uploaded properly.

Once the data is uploaded in EViews 8, we need to carry out logarithmic transformation on the data. Follow the step-by-step guide to perform logarithmic transformation of the dataset in Eiews 8:

Go to Object -> Generate Series...



Upon clicking, the following window will appear. Here you will have to type the equation lec=log(ec) for logarithmic transformation...



Once you click OK, a new variable LEC will be generated. In this way, you will have to log-transform the remaining four variables using the following four equations:

ly=log(y)
ln=log(n)
lpop=log(pop)
lpt=log(pt)

At the end, you will have five log-transformed variables, i.e. LN, LY, LEC, LPT, and LPOP. The EViews 8 window will look like the following:

Select the newly generated log-transformed variables (as shown in the following window), and go to Quick -> Group Statistics -> Granger Causality Test



Upon clicking, the following window will appear:



Once you click OK, the following window will appear:



At the beginning, the Stacked test (common coefficients) option will be chosen by default. We have determined the Lag length to be 2. Once you click OK, the following window will appear:



The results can be reported as per the following:

LY Granger Causes LEC (at 1% significant level)
LN Granger Causes LPOP (at 1% significant level)
LY Granger Causes LPT (at 1% significant level)
LEC Granger Causes LY (at 1% significant level)
LEC Granger Causes LPT (at 1% significant level)
LPOP Granger Causes LY (at 1% significant level)
LPOP Granger Causes LEC (at 1% significant level)
LPOP Granger Causes LPT (at 5% significant level)
LPT Granger Causes LY (at 1% significant level)
LPT Granger Causes LEC (at 10% significant level)

Here, we will run the Heterogeneous Granger causality test developed by Dumitrescu and Hurlin (2012).

Now, again go to Quick -> Group Statistics -> Granger Causality Test



Upon clicking, the following window will appear:



Once you click OK, the following window will appear:



Here, you will have to select the Dumitrescu Hurlin (individual coefficients) option. Like before, we have determined the Lag length to be 2. Now, the window should look like the following:



Once you click OK, the following window will appear:



The results can be reported as per the following:

LY Heterogeneously Granger Causes LN (at 5% significant level)
LY Heterogeneously Granger Causes LEC (at 5% significant level)
LY Heterogeneously Granger Causes LPT (at 1% significant level)
LN Heterogeneously Granger Causes LPOP (at 1% significant level)
LEC Heterogeneously Granger Causes LPT (at 1% significant level)
LPOP Heterogeneously Granger Causes LN (at 1% significant level)
LPOP Heterogeneously Granger Causes LEC (at 1% significant level)
LPOP Heterogeneously Granger Causes LPT (at 5% significant level)


In this way, we can conduct the standard and heterogeneous Granger Causality tests in EViews 8.