Abstract
We consider the estimation and inference of fixed effects (FE) spatial dynamic panel data (SDPD) models under small T and unknown heteroskedasticity by extending the M-estimation strategy for homoskedastic FE-SDPD model of Yang (2018, Journal of Econometrics). Unbiased estimating equations are obtained by adjusting the conditional quasi-score functions given the initial observations, leading to M-estimators that are free from the initial conditions and robust against unknown cross-sectional heteroskedasticity. Consistency and asymptotic normality of the proposed M-estimator are established. The standard errors are obtained by representing the estimating equations as sums of martingale differences. Monte Carlo results show that the proposed M-estimators have good finite sample performance. The practical importance and relevance of allowing for heteroskedasticity in the model is illustrated using data on sovereign risk spillover.
| Original language | English |
|---|---|
| Article number | 103520 |
| Journal | Regional Science and Urban Economics |
| Volume | 81 |
| DOIs | |
| State | Published - Mar 2020 |
| Externally published | Yes |
Keywords
- Adjusted quasi score
- Dynamic panels
- Fixed effects
- Initial-condition
- Martingale difference
- Short panels
- Spatial effects
- Unknown heteroskedasticity