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Dynamic panels with endogenous interaction effects when T is small

Listed author(s):
  • Elhorst, J. Paul

This paper compares the performance, measured in terms of bias, root mean squared error and computation time, of different estimators of the fixed effects dynamic panel data model extended to include endogenous interaction effects when T is small: (i) the bias corrected LSDV (BCLSDV) estimator based on Yu, De Jong and Lee (2008); (ii) the ML estimator based on Hsiao, Pesaran and Thamiscioglu (2002) and Bhargava and Sargan (1983) extended in this paper to include endogenous interaction effects; (iii) the GMM estimator based on Arrelano and Bond (1991) extended in this paper to include endogenous interaction effects; (iv) the ML estimator mixed with the BCLSDV parameter estimate of the endogenous interaction effects; and (v) the GMM estimator mixed with the BCLSDV parameter estimate of the endogenous interaction effects. It is found that the mixed ML/BCLSDV estimator outperforms the other estimators in terms of bias and root mean squared error when T = 5, and that the mixed GMM/BCLSDV estimator is a reasonable alternative for values of N greater than 500 due to differences in computation time.

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File URL: http://www.sciencedirect.com/science/article/pii/S0166-0462(10)00012-8
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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 40 (2010)
Issue (Month): 5 (September)
Pages: 272-282

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Handle: RePEc:eee:regeco:v:40:y:2010:i:5:p:272-282
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  1. Alok Bhargava & J. D. Sargan, 2006. "Estimating Dynamic Random Effects Models From Panel Data Covering Short Time Periods," World Scientific Book Chapters,in: Econometrics, Statistics And Computational Approaches In Food And Health Sciences, chapter 1, pages 3-27 World Scientific Publishing Co. Pte. Ltd..
  2. Hsiao, Cheng & Hashem Pesaran, M. & Kamil Tahmiscioglu, A., 2002. "Maximum likelihood estimation of fixed effects dynamic panel data models covering short time periods," Journal of Econometrics, Elsevier, vol. 109(1), pages 107-150, July.
  3. Brock, William A. & Durlauf, Steven N., 2001. "Interactions-based models," Handbook of Econometrics,in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 54, pages 3297-3380 Elsevier.
  4. Yu, Jihai & de Jong, Robert & Lee, Lung-fei, 2008. "Quasi-maximum likelihood estimators for spatial dynamic panel data with fixed effects when both n and T are large," Journal of Econometrics, Elsevier, vol. 146(1), pages 118-134, September.
  5. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 531-542.
  6. Adriaan R. Soetevent, 2006. "Empirics of the Identification of Social Interactions; An Evaluation of the Approaches and Their Results ," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 193-228, 04.
  7. Kelejian, Harry H & Prucha, Ingmar R, 1998. "A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 99-121, July.
  8. Federico Revelli, 2001. "Spatial patterns in local taxation: tax mimicking or error mimicking?," Applied Economics, Taylor & Francis Journals, vol. 33(9), pages 1101-1107.
  9. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
  10. Anselin, Luc & Hudak, Sheri, 1992. "Spatial econometrics in practice : A review of software options," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 509-536, September.
  11. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  12. Korniotis, George M., 2010. "Estimating Panel Models With Internal and External Habit Formation," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(1), pages 145-158.
  13. Lung-fei Lee, 2003. "Best Spatial Two-Stage Least Squares Estimators for a Spatial Autoregressive Model with Autoregressive Disturbances," Econometric Reviews, Taylor & Francis Journals, vol. 22(4), pages 307-335.
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