Abstract
Baltagi and Li (1992) showed that for estimating a single equation in a simultaneous panel data model, EC2SLS has more instruments than G2SLS. Although these extra instruments are redundant in White (1986) terminology, they may yield different estimates and standard errors in empirical studies with finite N and T. We illustrate this using the crime data of Cornwell and Trumbull (1994). We show that the standard errors of EC2SLS are smaller than those of G2SLS for this example. In general, we prove that the asymptotic variance of G2SLS differs from that of EC2SLS by a positive semi-definite matrix. Although this difference tends to zero as the sample size tends to infinity, in small samples, this difference may be different from zero and can lead to gains in small sample efficiency. This proof is extended to the system equations 3SLS counterparts.
Highlights
A Note on the Application of EC2SLS and EC3SLS Estimators in Panel Data ModelsFollow this and additional works at: https://surface.syr.edu/cpr Part of the Mathematics Commons
Where uit = i + it; with i s iid(0; 2 ), it s iid(0; 2 ); and Zi0t is 1 g vector of observations on the explanatory variables which includes endogenous variables
Baltagi and Li (1992) showed that for estimating a single equation in a simultaneous panel data model, EC2SLS has more instruments than G2SLS. These extra instruments are redundant in White’s (1986) terminology, they may yield di¤erent estimates and standard errors in empirical studies with ...nite N and T
Summary
Follow this and additional works at: https://surface.syr.edu/cpr Part of the Mathematics Commons. Recommended Citation Baltagi, Badi H. and Liu, Long, "A Note on the Application of EC2SLS and EC3SLS Estimators in Panel Data Models" (2009).
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
