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Dynamic panels with predetermined regressors: likelihood-based estimation and Bayesian averaging with an application to cross-country growth

Author

Listed:
  • Enrique Moral-Benito

    (Banco de España)

Abstract

This paper discusses likelihood-based estimation of linear panel data models with general predetermined variables and individual-specific effects. The resulting (pseudo) maximum likelihood estimator is asymptotically equivalent to standard GMM but tends to have smaller finite-sample biases as illustrated in simulation experiments. Moreover, the availability of such a likelihood function allows applying the Bayesian apparatus to this class of panel data models. Combining the aforementioned estimator with Bayesian model averaging methods we estimate empirical growth models simultaneously considering endogenous regressors and model uncertainty. Empirical results indicate that only the investment ratio seems to robustly cause long-run economic growth. Moreover, the estimated rate of convergence is not significantly different from zero.

Suggested Citation

  • Enrique Moral-Benito, 2011. "Dynamic panels with predetermined regressors: likelihood-based estimation and Bayesian averaging with an application to cross-country growth," Working Papers 1109, Banco de España.
    • Handle: RePEc:bde:wpaper:1109
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    References listed on IDEAS

    as
    1. Alonso-Borrego, Cesar & Arellano, Manuel, 1999. "Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 36-49, January.
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    3. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    4. Moral-Benito, Enrique, 2010. "Model averaging in economics," MPRA Paper 26047, University Library of Munich, Germany.
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    6. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
    7. J. Bradford De Long & Lawrence H. Summers, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 445-502.
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    Cited by:

    1. Aiyar, Shekhar & Duval, Romain & Puy, Damien & Wu, Yiqun & Zhang, Longmei, 2018. "Growth slowdowns and the middle-income trap," Japan and the World Economy, Elsevier, vol. 48(C), pages 22-37.
    2. Moral-Benito, Enrique & Bartolucci, Cristian, 2012. "Income and democracy: Revisiting the evidence," Economics Letters, Elsevier, vol. 117(3), pages 844-847.

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    Keywords

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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