Purchasing Power Parity in African Countries: Further Evidence based on the ADL Test for Threshold Cointegration

In this study, we applied a newly-developed Autoregressive Distributed Lag (ADL) test for threshold cointegration, proposed by Li and Lee (2010) to test the validity of long-run purchasing power parity (PPP) for a sample of 18 African countries from January 1985 to September 2008. Empirical results indicate that PPP holds true for half of these countries studied, the long-run PPP adjustment process toward its equilibrium is asymmetric. Our results have important policy implications for these African countries under study.