GMM Estimation of Empirical Growth Models

37 Pages Posted: 21 Nov 2001

See all articles by Stephen R. Bond

Stephen R. Bond

Nuffield College; Institute for Fiscal Studies (IFS)

Anke Hoeffler

University of Oxford - Centre for the Study of African Economies (CSAE)

Jonathan R.W. Temple

Centre for Economic Policy Research (CEPR)

Date Written: November 2001

Abstract

This Paper highlights a problem in using the first-differenced GMM panel data estimator to estimate 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.

Keywords: Convergence, growth, generalized method of moments, weak instruments

JEL Classification: O41, O47

Suggested Citation

Bond, Stephen R. and Hoeffler, Anke and Temple, Jonathan R.W., GMM Estimation of Empirical Growth Models (November 2001). CEPR Discussion Paper No. 3048. Available at SSRN: https://ssrn.com/abstract=290522

Stephen R. Bond (Contact Author)

Nuffield College ( email )

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Institute for Fiscal Studies (IFS)

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+44 20 7291 4800 (Phone)
+44 20 7323 4780 (Fax)

Anke Hoeffler

University of Oxford - Centre for the Study of African Economies (CSAE) ( email )

Oxford OX1 3UL
United Kingdom
+44 1865 274 554 (Phone)
+44 1865 274 558 (Fax)

Jonathan R.W. Temple

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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