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GMM Estimation of Empirical Growth Models

Stephen Bond, Anke Hoeffler () and Jonathan Temple

No 2001-W21, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: This paper highlights a problem in using the first-difference GMM panel data estimator 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; growth; generalised method of moments; weak instruments. (search for similar items in EconPapers)
JEL-codes: O41 O47 (search for similar items in EconPapers)
Date: 2001-09-12
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