A Note on the Application of EC2SLS and EC3SLS Estimators in Panel Data Models

Badi Baltagi and Long Liu ()
Additional contact information
Long Liu: Department of Economics, College of Business, University of Texas at San Antonio, One UTSA Circle, TX 78249-0633

No 116, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: Baltagi and Li (1992) showed that for estimating a single equation in a simultaneous panel data model, EC2SLS has more instruments than G2SLS. Although these extra instruments are redundant in White (1986) terminology, they may yield different estimates and standard errors in empirical studies with finite N and T. We illustrte this using the crime data of Cornwell and Trumbull (1994). We show that the standard errors of EC2SLS are smaller than those of G2SLS for this example. In general, we prove that the asymptotic variance of G2SLS differs from that of EC2SLS by a positive semi-definite matrix. Although this difference tends to zero as the sample size tends to infinity, in small samples, this difference may be different from zero and can lead to gains in small sample efficiency. This proof is extended to the system equations 3SLS counterparts.

Keywords: Instrument variable; panel data (search for similar items in EconPapers)
JEL-codes: C13 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2009-07
New Economics Papers: this item is included in nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Downloads: (external link)
https://surface.syr.edu/cpr/50/ (application/pdf)

Related works:
Journal Article: A note on the application of EC2SLS and EC3SLS estimators in panel data models (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:max:cprwps:116

Access Statistics for this paper

More papers in Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University 426 Eggers Hall, Syracuse, New York USA 13244-1020. Contact information at EDIRC.
Bibliographic data for series maintained by Katrina Fiacchi ().