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GMM Estimation of Empirical Growth Models

Stephen Roy Bond, Anke Hoeffler () and Jonathan Temple ()

No 3048, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper highlights a problem in using the first-differenced GMM panel data estimator to estimate cross-country growth regressions. When the time series are persistent, the first-differenced GMM estimator can be poorly behaved, since lagged levels of the series provide only weak instruments for subsequent first-differences. Revisiting the work of Caselli, Esquivel and Lefort (1996), we show that this problem may be serious in practice. We suggest using a more efficient GMM estimator that exploits stationarity restrictions and this approach is shown to give more reasonable results than first-differenced GMM in our estimation of an empirical growth model.

Keywords: convergence; generalized method of moments; growth; weak instruments (search for similar items in EconPapers)
JEL-codes: O41 O47 (search for similar items in EconPapers)
Date: 2001-11
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