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st: dynamic panel data, system GMM and fixed effect
I've a panel of 20 regions and 7 years (1998-2004)and I try to estimate a dynamic panel model as
yit = a*l.yit + b*(Xit) + uit.
My problem is that i've a heterogeneous panel. I tested for homogeneity constraints through a F-test but results showed that i could impose homogeneity on "a" and "b" only if fixed effect are included in the estimates.
Standard approach for estimate DPD is to take the first difference to remove fixed effect (xtabond). However, this procedure imposes a high degree of homogeneity, so that with heterogeneous panel, this seems to lead to inconsistent estimate as a big portion of the variance of y is explained by fixed effect.
If a include fixed effect in xtabond, the command drop these dummy as it takes the first-difference. I've try to run a system of gmm (xtabond2) including fixed effect from the level equation.
However, I don't know if this procedure is correct.
Could anyone help me?
Is a system of GMM consistent in presence of fixed effect?
I've to run a dynamc fixed effect model (xtivreg)?
Is a dynamicFE a consistent way to estimate such a dynamic panel (heterogeneity, N>T, etc.)?
University of Eastern Piedmont
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