GMM Estimation of Empirical Growth Models.

Working paper

This Paper highlights a problem in using the first-differenced GMM panel data estimator to estimate cross-country growth regressions. When the time series are persistent, the first-differenced GMM estimator can be poorly behaved, since lagged levels of the series provide only weak instruments for subsequent first-differences. Revisiting the work of Caselli, Esquivel and Lefort (1996), we show that this problem may be serious in practice. We suggest using a more efficient GMM estimator that exploits stationarity restrictions and this approach is shown to give more reasonable results than first-differenced GMM in our estimation of an empirical growth model.

Authors: Bond, S; Hoeffler, A; Temple, J

• Publisher: Nuffield College (University of Oxford)
• Series: Economics Working Papers
• Publication date: 2001-09-01
• Language: English