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GMM Estimation of Empirical Growth Models

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This paper highlights a problem in using the first-difference GMM panel data estimator cross-country growth regressions. When the time series are persistent, the first-differenced GMM estimator can be poorly behaved, since lagged levels of the series provide only weak instruments for subsequent first-differences. Revisiting the work of Caselli, Esquivel and Lefort (1996), we show that this problem may be serious in practice. We suggest using a more efficient GMM estimator that exploits stationarity restrictions, and this approach is shown to give more reasonable results than first-differenced GMM in our estimation of an empirical growth model.

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File URL: http://www.nuff.ox.ac.uk/Economics/papers/2001/w21/bht10.pdf
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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2001-W21.

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Length: 35 pages
Date of creation: 12 Sep 2001
Handle: RePEc:nuf:econwp:0121
Contact details of provider: Web page: https://www.nuffield.ox.ac.uk/economics/

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