Dynamic Panels with Predetermined Regressors: Likelihood-Based Estimation and Bayesian Averaging With an Application to Cross-Country Growth

55 Pages Posted: 26 May 2011

See all articles by Enrique Moral-Benito

Enrique Moral-Benito

Banco de España; Universidad Carlos III de Madrid

Date Written: May 17, 2011

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.

Keywords: dynamic panel estimation, maximum likelihood, weak instruments, growth regressions, bayesian model averaging

JEL Classification: C11, C33, O40

Suggested Citation

Moral-Benito, Enrique, Dynamic Panels with Predetermined Regressors: Likelihood-Based Estimation and Bayesian Averaging With an Application to Cross-Country Growth (May 17, 2011). Banco de Espana Working Paper, No. 1109. Available at SSRN: https://ssrn.com/abstract=1844186 or http://dx.doi.org/10.2139/ssrn.1844186

Enrique Moral-Benito (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

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