Publication Type

Working Paper

Version

publishedVersion

Publication Date

1-2013

Abstract

Motivated by the first differencing method for linear panel data models, we propose a class of iterative local polynomial estimators for nonparametric dynamic panel data models with or without exogeous regressors. The estimators utilize the additive structure of the first-differenced model, the fact that the two additive components have the same functional form, and the unknown function of interest is implicitly defined as a solution of a Fredholm integral equation of the second kind. We establish the uniform consistency and asymptotic normality of the estimators. We also propose a consistent test for the correct specification of linearity in typical dynamic panel data models based on the L2 distance of our nonparametric estimates and the parametric estimates under the linear restriction. We derive the asymptotic distributions of the test statistic under the null hypothesis and a sequence of Pitman local alternatives, and prove its consistency against global alternatives. Simulations suggest that the proposed estimators and tests perform well in finite samples. We apply our new methods to study the relation between economic growth, initial economic condition and capital accumulation and find the nonlinear relation between economic growth and initial economic condition.

Keywords

Additive models, Dynamic panel data models, Fredholm integral equation, Iterative estimator, Linearity, Local polynomial regression, Specification test

Discipline

Econometrics

Research Areas

Econometrics

First Page

1

Last Page

46

Copyright Owner and License

Authors

Comments

Published in Journal of Econometrics, https://doi.org/10.1016/j.jeconom.2013.04.020

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