Multiple structural breaks in Korea's macroeconomic data: an application of the Lumsdaine and Papell Test



Publication Details

Pahlavani, M. & Harvie, C. (2008). Multiple structural breaks in Korea's macroeconomic data: an application of the Lumsdaine and Papell Test. Journal of the Korean Economy, 9 (3), 425-441.


The Korean economy has undergone rapid economic growth and structural change since the early 1960s. Over this period of time it has been one of the fastest growing economies in Asia, but, more recently, has been vulnerable to external shocks which have contributed to major volatility in the economy. This paper employs quarterly time series data to endogenously determine the timing of major structural breaks for various macroeconomic variables in the Korean economy. The ADF (Augmented Dickey and Fuller) test and the LP (Lumsdaine and Papell, 1997) test are used to examine the time series properties of the data. The ADF test results provide no evidence against the unit root null hypothesis in all major macroeconomic variables under study. After accounting for the two most significant structural breaks in the data impacting on both the intercept and trend (model CC), results from the LP test indicate that the null of at least one unit root is rejected for some of the variables under investigation at the 10% level or better. The paper also goes further to shed some light on the implications of the Asian financial crisis on the Korean economy, as this is considered to be the most severe external shock to affect the economy in the recent past. Our preliminary empirical findings verify this, indicating that the dates of structural breaks in most cases point to the Asian financial crisis. However, using the LP approach it is shown that a second structural break can be identified, the timing of which depends on key policy changes or other factors contributing to economic turbulence in the Korean economy. The estimated two structural breaks were found to be statistically significant for all of the variables under investigation.

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Journal of the Korean Economy

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