A NOTE ON SPURIOUS REGRESSION IN PANELS WITH CROSS-SECTION DEPENDENCE

Jen-Je Su

No 23712, Discussion Papers from Massey University, Department of Applied and International Economics

Abstract: This paper analyses regression of two independent stationary panels with cross-sectional dependence. It is shown that the pooling least squares (PLS) estimator converges to zero in probability while the individual OLS estimator converges to a random variable. However, the PLS-based and the OLS-based t-statistics diverge, so the null hypothesis of no correlation tends to be spuriously rejected.

Keywords: Research; Methods/Statistical; Methods (search for similar items in EconPapers)
Pages: 12
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:ags:masddp:23712

DOI: 10.22004/ag.econ.23712

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