We estimate the speed of income convergence for a sample of 196 European NUTS 2 regions over the period 1985-1999. So far there is no direct estimator available for dynamic panels with strong spatial dependencies. We propose a two-step procedure, which involves first spatial filtering of the variables to remove the spatial correlation, and application of standard GMM estimators for dynamic pane...

This paper develops a new asymptotic theory for two-step GMM estimation and inference in the presence of clustered dependence. The key feature of alternative asymptotics is the number of clusters G is regarded as small or fixed when the sample size increases. Under the small-G asymptotics, this paper shows the centered two-step GMM estimator and the two continuously-updating GMM estimators we c...

In this paper we consider estimation and inference of common breaks in panel data models via adaptive group fused lasso. We consider two approaches — penalized least squares (PLS) for firstdifferenced models without endogenous regressors, and penalized GMM (PGMM) for first-differenced models with endogeneity. We show that with probability tending to one both methods can correctly determine the ...

Following the present atmosphere of budgetary cuts in the OECD countries we analyze the effects of fiscal consolidation in the composition of government expenditures by functions. We modify a standard median voter demand model to incorporate a form of fiscal illusion based on the idea that voters-taxpayers may not be fully aware of the true composition of government expenditures because all typ...

in this paper, the effect of trade openness on growth is examined across the members of organization of the islamic conference (oic) by using convergence-growth equation and gmm-system dynamic panel data estimator over the period 1980-2009. the results show that the overall trade, the trade with non-oic countries, and the investment in physical and human capital stimulate economic growth. in co...

Article history: Received 17 February 2014 Received in revised form 7 May 2014 Accepted 7 May 2014 Available online xxxx JEL classification: A13 C23 J30

Several rounds of banking reforms in China have aimed to increase the competitive condition and further enhance stability in the Chinese banking sector, while the joint effects of competition and risk-taking behaviour on the profitability in the banking sector have not been studied well enough so far in the literature. The current study contributes to the empirical literature by testing the imp...

This paper proposes the transformed maximum likelihood estimator for short dynamic panel data models with interactive fixed effects, and provides an extension of Hsiao et al. (2002) that allows for a multifactor error structure. This is an important extension since it retains the advantages of the transformed likelihood approach, whilst at the same time allows for observed factors (fixed or ran...

This paper discusses likelihood-based estimation of panel data models with individualspecific effects and both lagged dependent variable regressors and additional predetermined explanatory variables. The resulting new estimator, labeled as sub-system LIML (ssLIML), is asymptotically equivalent to standard panel GMM as N →∞ for fixed T , but tends to present smaller biases in finite samples as i...

We motivate and describe a GMM method of estimating linear dynamic models from a time series of independent cross-sections. This involves subjecting the model to a quasi-di!erencing transformation across pairs of individuals that belong to the same group. Desirable features of the model include the fact that: (i) no aggregation is involved, (ii) dynamic response parameters can vary across group...