Finance and the Sources of Growth
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Cites background from "Finance and the Sources of Growth"
...…Esquivel, and Lefort, 1996), estimation of a labor demand model (Blundell and Bond, 1998), the relation between financial intermediary development and economic growth (Beck, Levine, and Loayza, 2000), and the diversification discount (Hoechle, Schmid, Walter, and Yermack, 2012), among others....
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...First, Beck et al. (2000) note that if the original model is conceptually in levels, differencing may reduce the power of our tests by reducing the variation in the explanatory variables....
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References
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"Finance and the Sources of Growth" refers background or methods in this paper
...To exploit the time-series nature of the data, we create a panel data set and use recent dynamic panel techniques as proposed by Arellano and Bond (1991), Arellano and Bover (1995) and Blundell and Bond (1997)....
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...Blundell and Bond (1997) show that this system estimator reduces the potential biases and imprecision associated with the difference estimator....
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...Specifically, dynamic panel procedures typically take first differences of the observations in levels to eliminate country-specific effects [Arellano and Bond 1991; Holtz-Eakin, Newy, and Rosen 1990]....
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...To address this and the endogeneity problem, Arellano and Bond propose using the lagged values of the levels of the variables as instruments....
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...Dynamic panels: A GMM estimator20 Arellano and Bond (1991) propose to first-difference the regression equation to eliminate the country-specific effect. i t i t i t i t i t i t i t i ty y X X X X, , , , , , , ,' ( ) ' ( ) ( )− = − + − + −− − − − −1 11 21 2 12 1α β ε ε (10) This procedure solves the first econometric problem, as described above, but introduces a correlation between the new error term ε i,t - ε i,t-1 and the lagged dependent variable y i,t-1 – y i,t-2 if it is included in X1i,t-1 – X1i,t-2....
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