Dynamic Panel Data Models with Cross Section Dependence and Heteroscedasticity

Kazuhiko Hayakawa

Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: In this paper, we show that the bias-corrected first-difference (BCFD) estimator suggested by Chowdhury (1987) can be applied to the case where the error terms are cross-sectionally dependent and heteroscedastic. By deriving the finite sample bias of the BCFD estimator, we find that the BCFD estimator has small bias when T, the dimension of the time series, is not very large and ρ, the autoregressive parameter, is close to one. Simulation results show that the BCFD estimator performs better than existing estimators, especially when T is not very large.

Date: 2007-05
New Economics Papers: this item is included in nep-ecm and nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:hst:hstdps:d07-212

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