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Persistence, Signal-Noise Pattern and Heterogeneity in Panel Data: With an Application to the Impact of Foreign Direct Investment on GDP

Author

Listed:
  • Biørn, Erik

    (Dept. of Economics, University of Oslo)

  • Han, Xuehui

    (Economics and Research Department)

Abstract

GMM estimation of autoregressive panel data equations in error-ridden variables when the noise has memory, is considered. The impact of variation in the memory length in signal and noise spread and in the degree of individual heterogeneity are discussed with respect to finite sample bias, using Monte Carlo simulations. Also explored are also the impact of the strength of autocorrelation and the size of the IV set. GMM procedures using IVs in differences on equations in levels, in general perform better in small samples than procedures using IVs in levels on equations in differences. A case-study of the impact of Foreign Direct Investment (FDI) on GDP, inter alia, contrasting the manufacturing and the service sector, based on country panel data supplements the simulation results.

Suggested Citation

  • Biørn, Erik & Han, Xuehui, 2015. "Persistence, Signal-Noise Pattern and Heterogeneity in Panel Data: With an Application to the Impact of Foreign Direct Investment on GDP," Memorandum 04/2015, Oslo University, Department of Economics.
  • Handle: RePEc:hhs:osloec:2015_004
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Panel data; Measurement error; ARMA; GMM; Error memory; Monte Carlo; Foreign Direct Investment; Economic development; Country panel;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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