Skip to main content
SpringerLink
Log in

Specification Issues

  • Chapter
The Econometrics of Panel Data

Part of the book series: Advanced Studies in Theoretical and Applied Econometrics ((ASTA,volume 33))

Abstract

This chapter investigates two specific forms of misspecification for the error components model. The first, described in Section 12.1, assumes that the error components specification is valid but the number of components is misspecified. Since the one-way and two-way error components models are popular in economics, we focus on these models and study the effects of underspecifying or overspecifying the error components structure. The second form of misspecification also pertains to the error covariance structure. However, in this case, we consider a cross-sectionally heteroscedastic time-wise autocorrelated error structure described in Kmenta [1986] and set up a comparison via Monte-Carlo experiments between these two specifications. This is done in Section 12.2, Section 12.3 gives a brief presentation of Hausman’s [1978] specification test in the context of panel data, and Section 12.4 deals with other forms of misspecification and provides a list of other diagnostics for the error components model.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 129.00
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 169.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Ahn S.C., Low S. [ 1994 ]: A reformulation of the Hausman test for regression models with pooled cross-section time-series data, Journal of Econometrics, (forthcoming).

    Google Scholar 

  • Amemiya T. [ 1971 ]: The estimation of variances in a variance-components model, International Economic Review 12, 1–13.

    Article  Google Scholar 

  • Arellano M. [ 1990 ]: Testing for autocorrelation in dymanic random effects models, Review of Economic Studies 57, 127–134.

    Article  Google Scholar 

  • Arellano M. [ 1993 ]: On the testing of correlated effects with panel data, Journal of Econometrics 59, 87–97.

    Article  Google Scholar 

  • Arellano M., Bond S. [ 1991 ]: Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations, Review of Economic Studies 58, 277–297.

    Article  Google Scholar 

  • Balestra P. [ 1973 ]: Best quadratic unbiased estimators of the variance-covariance matrix in normal regression, Journal of Econometrics 2, 17–28.

    Article  Google Scholar 

  • Baltagi B.H. [ 1981 ]: Pooling: an experimental study of alternative testing and estimation procedures in a two-way error components model, Journal of Econometrics 17, 21–49.

    Article  Google Scholar 

  • Baltagi B.H. [ 1986 ]: Pooling under misspecification: some Monte Carlo evidence on the Kmenta and the error components techniques, Econometric Theory 2, 429–440.

    Article  Google Scholar 

  • Baltagi B.H. [ 1989 ]: The equivalence of the Boothe-MacKinnon and the Hausman specification tests in the context of panel data, Problem 89.3.3, Econometric Theory 5, 454.

    Article  Google Scholar 

  • Baltagi, B.H., Chang Y.J., Li Q. [ 1992 ]: Monte Carlo results on several new and existing tests for the error component model, Journal of Econometrics 54, 95–120.

    Article  Google Scholar 

  • Baltagi B.H., Hidalgo J., Li Q. [ 1993 ]: A non-parametric test for poolability using panel data, Working Paper, Texas A& M University, Department of Economics.

    Google Scholar 

  • Baltagi B.H., Li Q. [ 1991a ]: A joint test for serial correlation and random individual effects, Statistics and Probability Letters 11, 277–280.

    Article  Google Scholar 

  • Baltagi B.H., Li Q. [ 1991b ]: Variance component estimation under misspecification, Problem 91.3.3, Econometric Theory, 7, 418–419.

    Article  Google Scholar 

  • Baltagi B.H., Li Q. [ 1994 ]: Testing AR(1) against MA(1) disturbances in an error component model, Journal of Econometrics, (forthcoming).

    Google Scholar 

  • Bhargava A., Franzini L., Narendranathan W. [ 1982 ]: Serial correlation and fixed effects model, Review of Economic Studies 49, 533–549.

    Article  Google Scholar 

  • Breusch T.S., Pagan A.R. [ 1980 ]: The Lagrange multiplier test and its applications to model specification in econometrics, Review of Economic Studies 47, 239–253.

    Article  Google Scholar 

  • Brown R.L., Durbin J., Evans J.M. [ 1975 ]: Techniques for testing the constancy of regression relationships over time, Journal of the Royal Statistical Society 34, 149–192.

    Google Scholar 

  • Chamberlain G. [ 1982 ]: Multivariate regression models for panel data, Journal of Econometrics 18, 5–46.

    Article  Google Scholar 

  • Chow G.C. [ 1960 ]: Tests of equality between sets of coefficients in two linear regressions, Econometrica 28, 591–605.

    Article  Google Scholar 

  • Deschamps P.J. [ 1991 ]: On the estimated variances of regression coefficients in misspecified error components models, Econometric Theory, 7, 369–384.

    Article  Google Scholar 

  • Drummond D.J., Gallant R.A. [ 1977 ]: TSCSREG: A SAS procedure for the analysis of time series cross-section data, Mimeograph Series No. 1107, Institute of Statistics, North Carolina State University.

    Google Scholar 

  • Griffin J.M. [ 1982 ]: The welfare implications of externalities and price elasticities for telecommunications pricing, The Review of Economics and Statistics 64, 59–66.

    Article  Google Scholar 

  • Han A.K., Park D. [ 1989 ]: Testing for structural change in panel data: application to a study of U.S. foreign trade in manufacturing goods, Review of Economics and Statistics 71, 135–142.

    Article  Google Scholar 

  • Hansen P.L. [ 1982 ]: Large sample properties of generalized method of moments estimators, Econometrica, 50. 1029–1054.

    Article  Google Scholar 

  • Hausman J.A. [ 1978 ]: Specification tests in econometrics, Econometrica 46, 1251–1271.

    Article  Google Scholar 

  • Hausman J.A., Taylor W.E. [ 1981 ]: Panel data and unobservable individual effects, Econometrica 49, 1377–1398.

    Article  Google Scholar 

  • Holly A. [ 1982 ]: A remark on Hausman’s specification test, Econometrica 50, 749–759.

    Article  Google Scholar 

  • Holtz-Eakin D. [ 1988 ]: Testing for individual effects in autoregressive models, Journal of Econometrics 39, 297–307.

    Article  Google Scholar 

  • Kang S. [ 1985 ]: A note on the equivalence of specification tests in the two-factor multivariate variance components model, Journal of Econometrics 28, 193–203.

    Article  Google Scholar 

  • Kmenta J. [ 1986 ]: Elements of Econometrics, New York: Macmillan.

    Google Scholar 

  • Larson A.C., Watters J.S. [ 1993 ]: A convenient test of functional form for pooled econometric models, Empirical Economics 18, 271–280.

    Article  Google Scholar 

  • Li Q., Stengos T. [ 1992 ]: A Hausman specification test based on root-N-consistent semiparametric estimators, Economics Letters 40, 141–146.

    Article  Google Scholar 

  • Mizon G.E. [ 1984 ]: The encompassing approach in econometrics, in Econometrics and Quantitative Economics, ed. D.F. Hendry and K.F. Wallis, Oxford: Basil Blackwell.

    Google Scholar 

  • Moulton B.R. [ 1986 ]: Diagnostics for group effects in regression analysis, Journal of Business and Economic Statistics 5, 275–282.

    Article  Google Scholar 

  • Pagan A.R. [ 1984 ]: Model evaluation by variable addition, in Econometrics and Quanti-tative Economics, ed. D.F. Hendry and K.F. Wallis, Oxford: Basil Blackwell.

    Google Scholar 

  • Pesaran M.H., Smith R. [ 1994 ]: Estimating long-run relationships from dynamic het-erogenous panels, Journal of Econometrics, (forthcoming).

    Google Scholar 

  • Prais S.J., Winsten C.B. [ 1954 ]: Trend estimators and serial correlation, Unpublished Cowles Commission Discussion Paper: Stat. No. 383, Chicago.

    Google Scholar 

  • Prucha I.R. [ 1984 ]: On the asymptotic efficiency of feasible Aitken estimators for seemingly unrelated regression models with error components, Econometrica 52, 203–207.

    Article  Google Scholar 

  • Robertson D., Symons J. [ 1992 ]: Some strange properties of panel data estimators, Journal of Applied Econometrics 7, 175–189.

    Article  Google Scholar 

  • White H. [ 1984 ]: Asymptotic Theory for Econometricians. New York, Academic Press.

    Google Scholar 

  • Wolpin K.I. [ 1980 ]: A time-series cross-section analysis of international variation in crime and punishment, The Review of Economics and Statistics 62, 417–423.

    Article  Google Scholar 

  • Zellner A. [ 1962 ]: An efficient method of estimating seemingly unrelated regression and tests for aggregation bias, Jorunal of the American Statistical Association 57, 348–368.

    Article  Google Scholar 

Download references

Authors
  1. Badi H. Baltagi
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Monash University, Melbourne and Budapest University of Economics, Australia

    László Mátyás

  2. ERUDITE, Université de Paris-Val-de-Marne, France

    Patrick Sevestre

Rights and permissions

Reprints and permissions

Copyright information

© 1996 Kluwer Academic Publishers

About this chapter

Cite this chapter

Baltagi, B.H. (1996). Specification Issues. In: Mátyás, L., Sevestre, P. (eds) The Econometrics of Panel Data. Advanced Studies in Theoretical and Applied Econometrics, vol 33. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-0137-7_12

Download citation

  • DOI: https://doi.org/10.1007/978-94-009-0137-7_12

  • Publisher Name: Springer, Dordrecht

  • Print ISBN: 978-0-7923-3787-4

  • Online ISBN: 978-94-009-0137-7

  • eBook Packages: Springer Book Archive

Publish with us

Policies and ethics

Search

Navigation