SIMPLE LM TESTS FOR THE UNBALANCED NESTED ERROR COMPONENT REGRESSION MODEL

Badi Baltagi, Seuck Heun Song and Byoung Cheol Jung

Econometric Reviews, 2002, vol. 21, issue 2, 167-187

Abstract: This paper derives several Lagrange Multiplier tests for the unbalanced nested error component model. Economic data with a natural nested grouping include firms grouped by industry; or students grouped by schools. The LM tests derived include the joint test for both effects as well as the test for one effect conditional on the presence of the other. The paper also derives the standardized versions of these tests, their asymptotic locally mean most powerful version as well as their robust to local misspecification version. Monte Carlo experiments are conducted to study the performance of these LM tests.

Keywords: Panel data; Nested error component; Unbalanced data; LM tests (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1081/ETC-120014347

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