Lagrange multiplier type tests for slope homogeneity in panel data models

Breitung, Jörg; Roling, Christoph; Salish, Nazarii

doi:10.1111/ectj.12070

Cited by 17 publications

(7 citation statements)

References 16 publications

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“…Note that Theorem 3.7 is a stronger result than those usually derived in the related literature, as it proves consistency of the test decision (3.22) against a whole class of local alternatives. In contrast, the works cited in Section 2.2 consider either fixed alternatives or fixed local alternatives (such as Pesaran and Yamagata (2008) or Breitung et al (2016)).…”

Section: A Pivotal Test For Approximate Slope Homogeneitymentioning

confidence: 99%

“…As in most cases slope homogeneity cannot be determined a priori, many authors have developed goodness of fit tests to investigate if this assumption is reasonable (see Zellner (1962); Swamy (1970); Pesaran et al (1996); Phillips and Sul (2003); Pesaran and Yamagata (2008); Blomquist and Westerlund (2013); Breitung et al (2016) among others).…”

Section: Introductionmentioning

confidence: 99%

“…X) Assumption (1) (in a weaker form) is widely prevalent in the literature (see among othersPesaran and Yamagata (2008);Blomquist and Westerlund (2015);Breitung et al (2016);Campello et al (…”

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confidence: 99%

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Validating Approximate Slope Homogeneity in Large Panels

Kutta¹,

Dette²

2022

Preprint

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Statistical inference for large data panels is omnipresent in modern economic applications. An important benefit of panel analysis is the possibility to reduce noise and thus to guarantee stable inference by intersectional pooling. However, it is wellknown that pooling can lead to a biased analysis if individual heterogeneity is too strong. In classical linear panel models, this trade-off concerns the homogeneity of slope parameters, and a large body of tests has been developed to validate this assumption. Yet, such tests can detect inconsiderable deviations from slope homogeneity, discouraging pooling, even when practically beneficial.In order to permit a more pragmatic analysis, which allows pooling when individual heterogeneity is sufficiently small, we present in this paper the concept of approximate slope homogeneity. We develop an asymptotic level α test for this hypothesis, that is uniformly consistent against classes of local alternatives. In contrast to existing methods, which focus on exact slope homogeneity and are usually sensitive to dependence in the data, the proposed test statistic is (asymptotically) pivotal and applicable under simultaneous intersectional and temporal dependence. Moreover, it can accommodate the realistic case of panels with large intersections. A simulation study and a data example underline the usefulness of our approach.

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Section: A Pivotal Test For Approximate Slope Homogeneitymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Validating Approximate Slope Homogeneity in Large Panels

Kutta¹,

Dette²

2022

Preprint

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“…Similarly, statisticians have developed various panel unit root and cointegration tests to circumvent the problem (Liven &Lin, 1993;Quah, 1994;McCoskey & Kao, 1998;Chieng & Kao, 2002). Despite the efforts by applied econometricians, it appears that the panel unit roots test cannot provide an appropriate account of the cross-sectional dependence problem (Gao et al, 2020;Su& Chen, 2013;Pesaran & Yamagata, 2008;Ando & Bai, 2015;Breitung et al, 2016;Dikgraaf & Vollebergh, 2005). Breusch and Pagan (1979) and Pesaran (2004) are often implemented to resolve the problem.…”

Section: Cross-section Dependence and Homogeneity Testsmentioning

confidence: 99%

Financial Development, Human Capital Development and Climate Change in East and Southern Africa

Shobande

Asongu

2021

SSRN Journal

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Africa is currently experiencing both financial and human development challenges. While several continents have advocated for financial development in order to acquire environmentally friendly machinery that produces less emissions and ensures long-term sustainability, Africa is still lagging behind the rest of the world. Similarly, Africa's human development has remained stagnant, posing a serious threat to climate change if not addressed. Building on the underpinnings of the Environmental Kuznets Curve (EKC) hypothesis on the nexus between economic growth and environmental pollution, this study contributes to empirical research seeking to promote environmental sustainability as follows. First, it investigates the link between financial development, human capital development and climate change in East and Southern Africa. Second, six advanced panel techniquesare used, and they include: (1) cross-sectional dependency (CD) tests; (2) combined panel unit root tests; (3) combined panel cointegration tests; (4) panel VAR/VEC Granger causality tests and (5) combined variance decomposition analysis based on Cholesky and Generalised weights.Our finding shows that financial and human capital developments are important in reducing CO2 emissions and promoting environmental sustainability in East and Southern Africa.

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“…Source: Author's calculations. LM, Lagrange multiplier; CD, cross-sectional dependence.Overall, however, the null hypothesis of cross-sectional independence is rejected at the 1% significance level, among the countries in the panel.Relatedly, according toBreitung et al (2016), it is important to test the assumption of slope homogeneity before applying standard panel data techniques. For our paper, we employed the delta tilde and adjusted delta tilde tests provided byPesaran and Yamagata (PY) (2008).…”

mentioning

confidence: 99%

How important are remittances to savings? Evidence from the Latin America and the Caribbean Countries

Nnyanzi

Kilimani

Oryema

2022

IZA Journal of Development and Migration

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This paper investigates the direct and the indirect roles of migrant transfers in the saving behaviors of the Latin America and Caribbean (LAC) countries during the period 1997–2018. Using the autoregressive distributed lag (ARDL) panel estimation technique, the results based on the Pooled Mean Group approach provide strong evidence of the importance of inward remittances to savings. On average, an increase in inward remittances by 1% leads to about 0.10% increase in savings ceteris paribus, but the effect is quantitatively larger in the short-run than in the long-run, albeit more significant in the latter case. Quite outstanding here is the observation of the detrimental role of remittances on savings in the long-run once governance quality in aggregate and disaggregated forms are controlled for, suggesting possible adverse effects of remittances for economic development in the long-run. Nevertheless, macroeconomic stability as well as institutional quality, foreign direct investment (FDI), and foreign aid were found to be important moderators of the remittances–savings linkage. For the latter two variables, emphasis is on complementarity rather than substitutability between remittances, aid, and FDI. While in the short-run remittances appear to perform better in enhancing savings in countries where an improvement in corruption control is visible, political rights and civil liberties compliment migrant transfers in propelling savings in the long- and short-runs, respectively. Moreover, remittances are found to play a major role in ameliorating the adverse effects of the financial crisis on savings, just as they are observed to function as a lifeline to savings in countries with increasing macroeconomic instability in form of inflation, in the long-run. The findings are robust to the use of alternative estimation techniques. Policy recommendations are suggested.

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Lagrange multiplier type tests for slope homogeneity in panel data models

Cited by 17 publications

References 16 publications

Validating Approximate Slope Homogeneity in Large Panels

Validating Approximate Slope Homogeneity in Large Panels

Financial Development, Human Capital Development and Climate Change in East and Southern Africa

How important are remittances to savings? Evidence from the Latin America and the Caribbean Countries

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