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From |
delhawary@worldbank.org |

To |
statalist@hsphsun2.harvard.edu |

Subject |
st: HELP on xtabond2 |

Date |
Tue, 24 May 2005 15:09:44 -0400 |

Hi, I would very much appreciate your help and comments on my questions on xtabond2 I am trying to estimate a dynamic panel data model using an unbalanced data set with more than 50,000 observations, over 6,000 firms in 37 countries over the 1991 ? 2002 period. Each firm has a minimum of four consecutive years of data. I am estimating the model using the One Step Robust GMM System estimator using the command xtabond2 in STATA 8.0. I use year, industry and country dummies to control for time, industry and country specific effects. I am using STATA Command as follows: xi:xtabond2 Investmentratio l.Investmentratio Isquared Salesratio CFratio i.year i.Industry i.country, robust gmm(Investmentratio Salesratio CFratio, lag(2 3)) where Investmentratio= ratio of Investment to capital= dependent variable l.Investmentratio = lagged dependent variable = (lagged Investment ratio) Isquared = square of lagged dependent variable CFratio = ratio of Cash Flow to capital Salesratio= ratio of sales to capital I am treating the lagged dependent variable, the cash flow ratio and the sales ratio as endogenous (by including all of them in the gmm style option). The problem I am facing is that the validity of the instruments is rejected by the Hansen J test of over- identifying restrictions. The number of instruments is 88. Chi2(31)=196.04 Prob>chi2=0.000 None of the coefficients is statistically significant. I tried running the above equation for each country at a time. Surprisingly, I got P-values = 0 for the Hansen J test of over- identifying restrictions for five developed countries: UK, Italy, Germany, France and Australia. I tried running the equation for the whole data set, while excluding these five countries but still the validity of instruments got rejected with P-values=0. I would very much appreciate your help on the following questions: Question (1): Do I have to instrument for each endogenous variable (Investment ratio, Cash Flow ratio and Sales ratio) by including each one of them in the gmm list of instruments as I already have?, or can I use only one of them as instrument in the gmm style option ?. For instance, can I only use the cash Flow ratio as instrument with lags (2 3) as follows: Command: (here I am only accounting for time specific effects) xi:xtabond2 Investmentratio l.Investmentratio Isquared Salesratio CFratio i.year , robust gmm(CFratio, lag(2 3)) I tried the above specification, and the validity of the instruments get accepted (P value is 0.8). Hansen test of overid. restrictions: chi2(14) = 8.82 Prob > chi2 = 0.842 Question (2): Is a P-value of 0.8 usual to get in a test for over- identifying restrictions ?. Question (3): Can I use the instruments dated (t-2) only or the instruments dated (t-3) only ?. If yes, what would be the specified lags in that case ?. Question (4): How to control for firm specific effects ?. Are they automatically accounted for once I use firm/ country as panel identifier in STATA ?. I would very much appreciate your help and time, Thank you in advance, Best regards, Dahlia Anwar El- Hawary Consultant Financial Sector Operations and Policy Department World Bank Tel: 202 473 5238 * * For searches and help try: * http://www.stata.com/support/faqs/res/findit.html * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**st: AW: HELP on xtabond2***From:*"Wrede" <wrede@wiso.uni-koeln.de>

**Re: st: HELP on xtabond2***From:*Luck Double <doubleluck@gmail.com>

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