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A Note on the Estimation of Simultaneous Equations with Error Components

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  • Baltagi, Badi H.
  • Li, Qi

Abstract

Baltagi [3] derived 2SLS and 3SLS analogues for a simultaneous equation model with error components. These were denoted by EC2SLS and EC3SLS. More recently, Balestra and Varadharajan-Krishnakumar [1] derived alternative 2SLS and 3SLS analogues; these were denoted by G2SLS and G3SLS. This note explains the relationship between these estimators and shows that the set of instruments employed by Balestra and Varadharajan-Krishnakumar is a subset of those used in Baltagi. In addition this paper shows that for the single equation case the extra set of instruments is redundant and both EC2SLS and G2SLS have the same asymptotic variance-covariance matrix. However, for the system of equations, it can be shown that EC3SLS is asymptotically more efficient than G3SLS.

Suggested Citation

  • Baltagi, Badi H. & Li, Qi, 1992. "A Note on the Estimation of Simultaneous Equations with Error Components," Econometric Theory, Cambridge University Press, vol. 8(01), pages 113-119, March.
  • Handle: RePEc:cup:etheor:v:8:y:1992:i:01:p:113-119_01
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    1. AMBA OYON, Claude Marius & Mbratana, Taoufiki, 2017. "Simultaneous equation models with spatially autocorrelated error components," MPRA Paper 82395, University Library of Munich, Germany.
    2. Håkan Selin, 2012. "Marginal Tax Rates and Tax‐Favoured Pension Savings of the Self‐Employed: Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(1), pages 79-100, March.
    3. Hitzhusen, Frederick J. & Jeanty, Pierre Wilner, 2006. "Analyzing the Effects of Conflicts on Food Security in Developing Countries: An Instrumental Variable Panel Data Approach," 2006 Annual meeting, July 23-26, Long Beach, CA 21483, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Baltagi, Badi H. & Liu, Long, 2009. "A note on the application of EC2SLS and EC3SLS estimators in panel data models," Statistics & Probability Letters, Elsevier, vol. 79(20), pages 2189-2192, October.
    5. Nigel Driffield & Sarmistha Pal, 2007. "How Does Ownership Structure Affect Capital Structure and Firm Value? Recent Evidence from East Asia," CEDI Discussion Paper Series 07-04, Centre for Economic Development and Institutions(CEDI), Brunel University.
    6. Yuko Kinishita & Chia-Hui Lu, 2006. "On the Role of Absorptive Capacity: FDI Matters to Growth," IEAS Working Paper : academic research 06-A006, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    7. Jan F. Kiviet & Qu Feng, 2014. "Efficiency Gains by Modifying GMM Estimation in Linear Models under Heteroskedasticity," UvA-Econometrics Working Papers 14-06, Universiteit van Amsterdam, Dept. of Econometrics.
    8. Bernard, Jean-Thomas & Gavin, Michael & Khalaf, Lynda & Voia, Marcel, 2011. "The Environmental Kuznets Curve: Tipping Points, Uncertainty and Weak Identification," Working Papers 119109, University of Laval, Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE).
    9. Jean-Thomas Bernard & Michael Gavin & Lynda Khalaf & Marcel Voia, 2015. "Environmental Kuznets Curve: Tipping Points, Uncertainty and Weak Identification," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(2), pages 285-315, February.
    10. Han, Chirok, 2016. "Efficiency comparison of random effects two stage least squares estimators," Economics Letters, Elsevier, vol. 148(C), pages 59-62.
    11. Aggarwal, Raj & Goodell, John W., 2011. "International variations in expected equity premia: Role of financial architecture and governance," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 3090-3100, November.
    12. repec:jss:jstsof:v:076:i06 is not listed on IDEAS
    13. Manjón-Antolín, Miguel C., 2010. "Firm size and short-term dynamics in aggregate entry and exit," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 464-476, September.
    14. Trapani, Lorenzo & Urga, Giovanni, 2009. "Optimal forecasting with heterogeneous panels: A Monte Carlo study," International Journal of Forecasting, Elsevier, vol. 25(3), pages 567-586, July.
    15. Nigel Driffield & Vidya Mahambare & Sarmistha Pal, 2005. "How Ownership Structure Affects Capital Structure and Firm Performance? Recent Evidence from East Asia," Finance 0509028, University Library of Munich, Germany.
    16. J. Arauzo & M. Manjón & M. Martín & A. Segarra, 2007. "Regional and Sector-specific Determinants of Industry Dynamics and the Displacement–replacement Effects," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 34(2), pages 89-115, April.
    17. Álvarez, Inmaculada C. & Barbero, Javier & Zofío, José L., 2017. "A Panel Data Toolbox for MATLAB," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 76(i06).
    18. Lu, Lina, 2017. "Simultaneous Spatial Panel Data Models with Common Shocks," Risk and Policy Analysis Unit Working Paper RPA 17-3, Federal Reserve Bank of Boston.
    19. Pennerstorfer, Dieter & Weiss, Christoph R., 2011. "Do Cooperatives Offer High Quality Products? Theory and Empirical Evidence from the Wine Market," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 115741, European Association of Agricultural Economists.

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