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
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Von: [email protected]
[mailto:[email protected]] Im Auftrag von
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Gesendet: Dienstag, 24. Mai 2005 21:10
An: [email protected]
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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