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Problems in Applying Dynamic Panel Data Models: Theoretical and Empirical Findings




The objective of this paper is twofold: First, the applicability of a widely used dynamic model, the autoregressive distributed lag model (ARDL), is scrutinized in a panel data setting. Second, Chile’s development of market shares in the EU market in the period of 1988 to 2002 is then analyzed in this dynamic framework, testing for the impact of price competitiveness on market shares and searching for estimation methods that allow dealing with the problem of inter-temporal and cross-section correlation of the disturbances. To estimate the coefficients of the ARDL model, FGLS is utilized within the Three Stage Feasible Generalized Least Squares (3SFGLS) and the system Generalized Method of Moments (system GMM) methods. A computation of errors is added to highlight the susceptibility of the model to problems related to underlying model assumptions.

Suggested Citation

  • Felicitas Nowak-Lehmann D. & Dierk Herzer & Sebastian Vollmer & Inmaculada Martínez-Zarzoso, 2006. "Problems in Applying Dynamic Panel Data Models: Theoretical and Empirical Findings," Ibero America Institute for Econ. Research (IAI) Discussion Papers 140, Ibero-America Institute for Economic Research.
  • Handle: RePEc:got:iaidps:140

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    References listed on IDEAS

    1. Breitung, Jörg & Pesaran, Mohammad Hashem, 2005. "Unit roots and cointegration in panels," Discussion Paper Series 1: Economic Studies 2005,42, Deutsche Bundesbank.
    2. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1989. "The Revenues-Expenditures Nexus: Evidence from Local Government Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 415-429, May.
    3. Durlauf, Steven N. & Johnson, Paul A. & Temple, Jonathan R.W., 2005. "Growth Econometrics," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 8, pages 555-677 Elsevier.
    4. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
    5. John R. Cable, 1997. "Market Share Behavior And Mobility: An Analysis And Time-Series Application Notes," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 136-141, February.
    6. Kim, MinKyoung & Cho, Guedae & Koo, Won W., 2003. "Determining Bilateral Trade Patterns Using A Dynamic Gravity Equation," Agribusiness & Applied Economics Report 23538, North Dakota State University, Department of Agribusiness and Applied Economics.
    7. Nowak-Lehmann Felicitas, 2004. "Different approaches of modelling reaction lags: how do Chilean manufacturing exports react to movements of the real exchange rate?," Applied Economics, Taylor & Francis Journals, vol. 36(14), pages 1547-1560.
    8. Ruth Judson & Ann L. Owen, "undated". "Estimating Dynamic Panel Data Models: A Practical Guide for Macroeconomists," Finance and Economics Discussion Series 1997-03, Board of Governors of the Federal Reserve System (U.S.).
    9. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    10. Arellano, Manuel, 1989. "A note on the Anderson-Hsiao estimator for panel data," Economics Letters, Elsevier, vol. 31(4), pages 337-341, December.
    11. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-670, Special I.
    12. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 5-27, July.
    13. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    14. Blundell, Richard & Bond, Stephen & Devereux, Michael & Schiantarelli, Fabio, 1992. "Investment and Tobin's Q: Evidence from company panel data," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 233-257.
    15. Keane, Michael P & Runkle, David E, 1992. "On the Estimation of Panel-Data Models with Serial Correlation When Instruments Are Not Strictly Exogenous," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(1), pages 1-9, January.
    16. 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.
    17. Nazrul Islam, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1127-1170.
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    More about this item


    Dynamic panel data model; autoregressive distributed lag model; pooled 3Stage Feasible;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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