Only statistical inference with stationary variables provides valid results. In simple words, this is because if variables are non-stationary then any correlation between the explanatory and the dependent variable could be due to the trending in both variables that is caused by a third variable not included in the model. We tested for the non-stationarity of the variables in our model formally with the help of Levin, Lin and Chu’s (2002) unit root test for panel data. For the dependent variables and several of the explanatory variables we could not reject the hypothesis of non-stationarity. Fortunately, it is often the case that if a variable Xt is non-stationary it.
