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st: AW: HELP on xtabond2


From   "Wrede" <wrede@wiso.uni-koeln.de>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: AW: HELP on xtabond2
Date   Wed, 25 May 2005 21:22:57 +0200

Hi Delha,
Reading your questions i did not understand why the salesratio should be an
endogenous variable. Isn´t it a exogenous variable that explains the
investment ratio? Maybe same reasoning for the cash flow ratio. 
In that case you only have to instrument for the l.investmentratio.
niko

-----Ursprüngliche Nachricht-----
Von: owner-statalist@hsphsun2.harvard.edu
[mailto:owner-statalist@hsphsun2.harvard.edu] Im Auftrag von
delhawary@worldbank.org
Gesendet: Dienstag, 24. Mai 2005 21:10
An: statalist@hsphsun2.harvard.edu
Betreff: st: HELP on xtabond2


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

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