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On The Estimation and Testing of Fixed Effects Panel Data Models with Weak Instruments

Badi Baltagi (), Chihwa Kao () and Long Liu
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Long Liu: Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244-1020

No 143, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: This paper studies the asymptotic properties of within groups k-class estimators in a panel data model with weak instruments. Weak instruments are characterized by the coefficients of the instruments in the reduced form equation shrinking to zero at a rate proportional to nTδ ; where n is the dimension of the cross-section and T is the dimension of the time series. Joint limits as (n,T )→∞ show that this within group k-class estimator is consistent if 0 ≤δ ≤ ½ and inconsistent if ½ ≤δ ≤ ∞. Key Words: Weak Instrument; Panel Data; fixed effects; Pitman drift local-to-zero JEL No. C13, C33

New Economics Papers: this item is included in nep-ecm
Date: 2012-09
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