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Re: st: using xtabond and xtabond2

Subject   Re: st: using xtabond and xtabond2
Date   Sat, 28 Jul 2007 20:41:27 -0400

Michael Binder (Dynamic panel data models with homogeneous slopes) shows that
the bias in the dynamic FE models is equal to

  (Embedded image moved to file: pic25996.jpg) where  is the true coefficient,
and AT and BT complicated expressions that tend respectively to 0 and 1 when the
time dimension T tends to infinity. Consequently, with a very large T (say, more
than 50), the bias is quasi non-existent. However, I had T>150 and one of the
referees strongly complained why I am using FE, and not Arellano-Bond.


Development Research, World Bank
Email: or branko_mi@yahoo.
tel: 202-473-6968
World Bank, Room MC 3-581
1818 H Street NW
Washington D.C. 20433

For "Worlds Apart" see


For papers see also:

             Michael Hanson                                                     
             om>                                                             To 
             Sent by:                   
             owner-statalist                                                 cc 
                                     Re: st: using xtabond and xtabond2         
             07:55 PM                                                           
             Please respond                                                     

On Jul 28, 2007, at 6:56 PM, natalie chan wrote:

> Maybe this is  a question more about econometrics than about Stata but
> I can't find anywhere more appropriate to ask this question. Thanks in
> advance.
> I am doing regressions on economic growth equations with a panel data
> of 20 years for 48 countries. I wanted to use dynamic panel approach
> with xtabond or xtabond2, however, the Arellano-Bond methods are
> specified for data with small T and large N.  On the other hand, I
> have seen some researchers using Arellano-Bond methods on growth
> models, including Bond himself. Could anyone give me some advice on
> this? Thanks a lot.

             I would like to expand Natalie's question:  I have an application
dynamic panel data in which T/N is nearly 3, with N = 50.  In David
Roodman's excellent discussion of -xtabond2- [1], he writes, "If T is
large, dynamic panel bias becomes insignificant, and a more
straightforward fixed effects estimator works." (p. 42)  However, I
have never been able to find a discussion of how "large" of a T is
"large enough" in the literature (which I interpret is part of
Natalie's question).  In the only textbook reference I have found,
Baltagi (2005) [2] writes, "FE, GMM, and LIML exhibit a bias term in
their asymptotic distributions; the biases are of the order 1/T, 1/N,
and 1/(2N-T), respectively." (p. 153)

             Would it be reasonable, therefore, to conclude that in Natalie's
case (T/N < 1/2), GMM (i.e. AB-type estimators) or LIML would be
preferred, whereas in my case (T/N > 2.5), FE would be preferred?  (I
realize that this claim is based on asymptotic arguments, and that
the N & T discussed here are probably too small.  Any information
about the small-sample properties of these estimators in a dynamic
panel context would be appreciated as well.)

             I also recognize that this question is at least as much about
statistics (econometrics) as about Stata, and I appreciate any help
or suggestions.

[1] <>
[2] <>

                                         -- Mike

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