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The Use of Principal Components in Simultaneous Equations: An Empirical Application

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  • Jones, Eugene

Abstract

The transformation of jointly dependent and predetermined variables into principal components is shown to be an effective method for handling multicollinearity in simultaneous equations at the second stage. Estimates are obtained which are theoretically meaningful and • statistically significant. Simulations from the reduced forms are realistic relative to historical values.

Suggested Citation

  • Jones, Eugene, 1985. "The Use of Principal Components in Simultaneous Equations: An Empirical Application," 1985 Annual Meeting, August 4-7, Ames, Iowa 278516, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea85:278516
    DOI: 10.22004/ag.econ.278516
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    File URL: https://ageconsearch.umn.edu/record/278516/files/aaea-1985-011.pdf
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    References listed on IDEAS

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    1. Ron C. Mittelhammer & John L. Baritelle, 1977. "On Two Strategies for Choosing Principal Components in Regression Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 59(2), pages 336-343.
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    Cited by:

    1. Darroch, Mark A.G. & Mushayanyama, T., 2006. "Improving working relationships for smallholder farmers in formal organic crop supply chains: Evidence from KwaZulu-Natal, South Africa," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 45(3), pages 1-22, September.

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