The data file mexico contains real GDP for Mexico and the United States from the first quarter of 1980 to the third quarter of 2006 . Both series have been standardized so that the average value in 2,000 is 100 .

a. Perform the test for cointegration between Mexico and the Unites States using all three test equations in (12.29). Are the results consistent?

b. The theory of convergence in economic growth suggests that the two GDPs should be proportional and cointegrated. That is, there should be a cointegrating relationship that does not contain an intercept or a trend. Do your results support this theory?

c. If the variables are not cointegrated, what should you do if you are interested in testing the relationship between Mexico and the United States?

Data From Equation 12.29:-

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Equation 1 , = y - bx Equation 2 , y - bx - b = Equation 3: , y - bx - b - t = (12.29a) (12.29b) (12.29c)