Joint tests for dynamic and spatial effects in short panels with fixed effects and heteroskedasticity

Zhenlin Yang

Empirical Economics, 2021, vol. 60, issue 1, No 3, 92 pages

Abstract: Abstract Simple and reliable tests are proposed for testing the existence of dynamic and/or spatial effects in fixed-effects panel data models with small T and possibly heteroskedastic errors. The tests are constructed based on the adjusted quasi scores (AQS), which correct the conditional quasi scores given the initial differences to account for the effect of initial values. To improve the finite sample performance, standardized AQS tests are also derived, which are shown to have much improved finite sample properties. All the proposed tests are robust against nonnormality, but some are not robust against cross-sectional heteroskedasticity (CH). A different type of adjustments is made on the AQS functions, leading to a set of tests that are fully robust against unknown CH. Monte Carlo results show excellent finite sample performance of the standardized versions of the AQS tests.

Keywords: Adjusted quasi scores; Dynamic effect; Fixed effects; Heteroskedasticity; Initial conditions; Nonnormality; Short panels; Tests; Spatial effects (search for similar items in EconPapers)
JEL-codes: C12 C18 C21 C23 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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DOI: 10.1007/s00181-020-01935-y

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