A lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model
It is well known that the standard Breusch and Pagan (1980) LM test for cross-equation correlation in a SUR model is not appropriate for testing cross-sectional dependence in panel data models when the number of cross-sectional units (n) is large and the number of time periods (T) is small. In fact,...
| Main Authors: | , , |
|---|---|
| Other Authors: | |
| Format: | Journal Article |
| Language: | English |
| Published: |
2013
|
| Subjects: | |
| Online Access: | https://hdl.handle.net/10356/107476 http://hdl.handle.net/10220/18061 http://dx.doi.org/10.1016/j.jeconom.2012.04.004 |
| _version_ | 1826110713239699456 |
|---|---|
| author | Baltagi, Badi H. Feng, Qu. Kao, Chihwa. |
| author2 | School of Humanities and Social Sciences |
| author_facet | School of Humanities and Social Sciences Baltagi, Badi H. Feng, Qu. Kao, Chihwa. |
| author_sort | Baltagi, Badi H. |
| collection | NTU |
| description | It is well known that the standard Breusch and Pagan (1980) LM test for cross-equation correlation in a SUR model is not appropriate for testing cross-sectional dependence in panel data models when the number of cross-sectional units (n) is large and the number of time periods (T) is small. In fact, a scaled version of this LM test was proposed by Pesaran (2004) and its finite sample bias was corrected by Pesaran et al. (2008). This was done in the context of a heterogeneous panel data model. This paper derives the asymptotic bias of this scaled version of the LM test in the context of a fixed effects homogeneous panel data model. This asymptotic bias is found to be a constant related to n and T, which suggests a simple bias corrected LM test for the null hypothesis. Additionally, the paper carries out some Monte Carlo experiments to compare the finite sample properties of this proposed test with existing tests for cross-sectional dependence. |
| first_indexed | 2024-10-01T02:39:00Z |
| format | Journal Article |
| id | ntu-10356/107476 |
| institution | Nanyang Technological University |
| language | English |
| last_indexed | 2024-10-01T02:39:00Z |
| publishDate | 2013 |
| record_format | dspace |
| spelling | ntu-10356/1074762019-12-06T22:32:02Z A lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model Baltagi, Badi H. Feng, Qu. Kao, Chihwa. School of Humanities and Social Sciences DRNTU::Social sciences::Economic theory It is well known that the standard Breusch and Pagan (1980) LM test for cross-equation correlation in a SUR model is not appropriate for testing cross-sectional dependence in panel data models when the number of cross-sectional units (n) is large and the number of time periods (T) is small. In fact, a scaled version of this LM test was proposed by Pesaran (2004) and its finite sample bias was corrected by Pesaran et al. (2008). This was done in the context of a heterogeneous panel data model. This paper derives the asymptotic bias of this scaled version of the LM test in the context of a fixed effects homogeneous panel data model. This asymptotic bias is found to be a constant related to n and T, which suggests a simple bias corrected LM test for the null hypothesis. Additionally, the paper carries out some Monte Carlo experiments to compare the finite sample properties of this proposed test with existing tests for cross-sectional dependence. 2013-12-05T02:32:05Z 2019-12-06T22:32:02Z 2013-12-05T02:32:05Z 2019-12-06T22:32:02Z 2012 2012 Journal Article Baltagi, B. H., Feng, Q., & Kao, C. (2012). A lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model. Journal of econometrics, 170(1), 164-177. 0304-4076 https://hdl.handle.net/10356/107476 http://hdl.handle.net/10220/18061 http://dx.doi.org/10.1016/j.jeconom.2012.04.004 en Journal of econometrics |
| spellingShingle | DRNTU::Social sciences::Economic theory Baltagi, Badi H. Feng, Qu. Kao, Chihwa. A lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model |
| title | A lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model |
| title_full | A lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model |
| title_fullStr | A lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model |
| title_full_unstemmed | A lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model |
| title_short | A lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model |
| title_sort | lagrange multiplier test for cross sectional dependence in a fixed effects panel data model |
| topic | DRNTU::Social sciences::Economic theory |
| url | https://hdl.handle.net/10356/107476 http://hdl.handle.net/10220/18061 http://dx.doi.org/10.1016/j.jeconom.2012.04.004 |
| work_keys_str_mv | AT baltagibadih alagrangemultipliertestforcrosssectionaldependenceinafixedeffectspaneldatamodel AT fengqu alagrangemultipliertestforcrosssectionaldependenceinafixedeffectspaneldatamodel AT kaochihwa alagrangemultipliertestforcrosssectionaldependenceinafixedeffectspaneldatamodel AT baltagibadih lagrangemultipliertestforcrosssectionaldependenceinafixedeffectspaneldatamodel AT fengqu lagrangemultipliertestforcrosssectionaldependenceinafixedeffectspaneldatamodel AT kaochihwa lagrangemultipliertestforcrosssectionaldependenceinafixedeffectspaneldatamodel |