st: RE: Dynamic Panel Data

["Millimet, Daniel" <millimet@mail.smu.edu>]

While not an expert, it is not uncommon that to use a LDV model even though the data are spaced in 5-yr intervals.  This is frequently the case in the empirical growth literature.  As long as the intervals are evenly spaced (i.e., every period is 5 yrs, then a typical LDV model can be appropriate. 

In terms of everything else becoming insignificant once the LDV is added, I doubt this is that uncommon.  This occurs if the outcome is highly persistent.  Then the lag explains nearly all of the current value, and time-varying x's explain little.  For example, this occurs (in my experience) in gravity models of bilateral trade flows.  In this case, it is up to you how to proceed.  On the one hand, the LDV explains a lot.  On the other hand, the model then does not say anything about where the initial value y_0 comes from; so, you don't learn a lot.

Dann

*******************************************
Daniel L. Millimet, Professor
Department of Economics
Box 0496
SMU
Dallas, TX 75275-0496
phone: 214.768.3269
fax: 214.768.1821
web: http://faculty.smu.edu/millimet
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-----Original Message-----
From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Humaira Asad
Sent: Saturday, March 05, 2011 5:53 PM
To: STATA HELP
Subject: st: Dynamic Panel Data



Hi,
 
I am working with a panel of 107 countries spanning over 1960 to 2010. Since there were a large number of missing values so I have averaged the data over five years. Now there are 10 time periods. I have estimated the models using OLS, Fixed Effect and Random effect. The results show that random effect model is appropriate. When I introduce the lags of the dependent variable, estimates considerably change and very few regressors remain significant. It seems I am wrong somewhere.
 
1. How can I decide the number of lags of the dependent variable? as the first lag of the dependent variable appear to be significant, but its inclusion makes almost all the other regressors insignificant.
2. Is it econometrically correct to use LDV when data is averaged over five years?
3. Kindly suggest any reading to be clear about these things?






Humaira Asad
PhD Research Scholar

UoE Business School

University of Exeter, England 		 	   		  
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