This paper tests the hysteresis hypothesis in unemployment for 13 Latin American countries covering the period 1980-2005. The tests exploit the time series and the cross sectional variation of the series, and allows for cross section dependence and a different number of endogenously determined structural breakpoints. The findings give support to the hysteric dynamic hypothesis for the majority of the countries analysed. The implications of the results have ramifications regarding macro-stabilisation, structural reform, and the design of social safety protection. Ã Only in the cases of Costa Rica and Panama the null hypothesis is not rejected using a 1 per cent critical value, in the other cases is at a 5 per cent and a 10 per cent. Allowing for 5 structural breaks. 9 Actually, {e it } and {v it } are mutually independent across the two dimensions of the panel.
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