1. Econometric Analysis of Panel Data Dynamic Panel Data Analysis –First Difference Model –Instrumental Variables Method –Generalized Method of Moments –Arellano-Bond-Bover Estimator

2. Dynamic Panel Data Analysis The Model

3. Dynamic Panel Data Analysis The Model

4. Dynamic Panel Data Analysis Model Assumptions: First-Difference Model

5. Dynamic Panel Data Analysis Instrumental Variables

6. Dynamic Panel Data Analysis Instrumental Variables

7. Dynamic Panel Data Analysis Instrumental Variables Method

8. Dynamic Panel Data Model Instrumental Variables Estimation HAC Variance-Covariance Matrix

9. Dynamic Panel Data Model Arellano-Bond Estimator is based on Generalized Method of Moments (GMM) –With a proper choice of a p.d.f. weighting matrix γ

10. Arellano-Bond Estimator

11. Notations

12. Arellano-Bond Estimator First-step GMM Estimator

13. Arellano-Bond Estimator Second-step GMM Estimator

14. Example: Returns to Schooling Cornwell and Rupert Model (1988) Data (575 individuals over 7 years) –Dependent Variable y it : LWAGE = log of wage –Explanatory Variables x it : Time-Variant Variables x1 it : –EXP = work experience WKS = weeks worked  endogenous OCC = occupation, 1 if blue collar, IND = 1 if manufacturing industry SOUTH = 1 if resides in south SMSA = 1 if resides in a city (SMSA) MS = 1 if married UNION = 1 if wage set by union contract Time-Invariant Variables x2 i : –ED = years of education  endogenous FEM = 1 if female BLK = 1 if individual is black