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Diagnostic Tests of Cross Section Independence for Nonlinear Panel Data Models

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  • Hsiao, C.
  • Pesaran, M.H.
  • Pick, A.

Abstract

In this paper we discuss tests for residual cross section dependence in nonlinear panel data models. The tests are based on average pair-wise residual correlation coefficients. In nonlinear models, the definition of the residual is ambiguous and we consider two approaches: deviations of the observed dependent variable from its expected value and generalized residuals. We show the asymptotic consistency of the cross section dependence (CD) test of Pesaran (2004). In Monte Carlo experiments it emerges that the CD test has the correct size for any combination of N and T whereas the LM test relies on T large relative to N. We then analyze the roll-call votes of the 104th U.S. Congress and find considerable dependence between the votes of the members of Congress.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0716.

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Length: 29
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:cam:camdae:0716

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Keywords: Cross-section dependence; nonlinear panel data model.;

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  1. Pesaran, M.H. & Ullah, A. & Yamagata. T., 2006. "A Bias-Adjusted LM Test of Error Cross Section Independence," Cambridge Working Papers in Economics 0641, Faculty of Economics, University of Cambridge.
  2. Chesher, Andrew & Irish, Margaret, 1987. "Residual analysis in the grouped and censored normal linear model," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 33-61.
  3. Gourieroux, C. & Monfort, A. & Trognon, A., 1985. "A General Approach to Serial Correlation," Econometric Theory, Cambridge University Press, vol. 1(03), pages 315-340, December.
  4. Pesaran, M.H., 2004. "‘General Diagnostic Tests for Cross Section Dependence in Panels’," Cambridge Working Papers in Economics 0435, Faculty of Economics, University of Cambridge.
  5. Frees, Edward W., 1995. "Assessing cross-sectional correlation in panel data," Journal of Econometrics, Elsevier, vol. 69(2), pages 393-414, October.
  6. Gourieroux, Christian & Monfort, Alain & Renault, Eric & Trognon, Alain, 1987. "Generalised residuals," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 5-32.
  7. Ng, Serena, 2006. "Testing Cross-Section Correlation in Panel Data Using Spacings," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 12-23, January.
  8. Ullah, Aman, 2004. "Finite Sample Econometrics," OUP Catalogue, Oxford University Press, edition 1, number 9780198774488, September.
  9. H. Kelejian, Harry & Prucha, Ingmar R., 2001. "On the asymptotic distribution of the Moran I test statistic with applications," Journal of Econometrics, Elsevier, vol. 104(2), pages 219-257, September.
  10. repec:wop:humbsf:2000-20 is not listed on IDEAS
  11. Lee, Lung-Fei, 2002. "Consistency And Efficiency Of Least Squares Estimation For Mixed Regressive, Spatial Autoregressive Models," Econometric Theory, Cambridge University Press, vol. 18(02), pages 252-277, April.
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Cited by:
  1. Sarafidis, Vasilis & Wansbeek, Tom, 2010. "Cross-sectional Dependence in Panel Data Analysis," MPRA Paper 20367, University Library of Munich, Germany.
  2. Martí Ballester, Carmen Pilar, 2013. "Determinants of equity pension plan flows," Economics Discussion Papers 2013-15, Kiel Institute for the World Economy.

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