Fixed Effects or GMM-System? Panel Data Estimation GDP x Social Spending of Municipalities

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rafrods
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Joined: Mon Apr 05, 2021 5:32 pm

Fixed Effects or GMM-System? Panel Data Estimation GDP x Social Spending of Municipalities

Postby rafrods » Tue May 04, 2021 5:11 pm

Hello. I am doing a work on the impact of municipal social spending on municipal GDP for the period from 2002 to 2018, and I would like to know if the fixed effects model is sufficient, or if it is necessary to estimate also in GMM and compare the results. My dependent variable is the GDP per capita of the municipalities and my explanatory variables are some components of spending, classified as social (education, health, social security, social assistance, sanitation, housing), and some dummy's of time and electoral cycle.

startz
Non-normality and collinearity are NOT problems!
Posts: 3699
Joined: Wed Sep 17, 2008 2:25 pm

Re: Fixed Effects or GMM-System? Panel Data Estimation GDP x Social Spending of Municipalities

Postby startz » Tue May 04, 2021 5:51 pm

Do you think the level of GDP affects the level of spending?

rafrods
Posts: 9
Joined: Mon Apr 05, 2021 5:32 pm

Re: Fixed Effects or GMM-System? Panel Data Estimation GDP x Social Spending of Municipalities

Postby rafrods » Wed May 05, 2021 1:42 pm

Yes, but GDP is my dependent variable (Y) and the types of speding are my X variables. Another question, are autocorrelation and heteroscedasticity also elements for using gmm?

startz
Non-normality and collinearity are NOT problems!
Posts: 3699
Joined: Wed Sep 17, 2008 2:25 pm

Re: Fixed Effects or GMM-System? Panel Data Estimation GDP x Social Spending of Municipalities

Postby startz » Wed May 05, 2021 1:46 pm

If your Y variable can affect your X variable you should use GMM. GMM can also handle heteroskedasticity and autocorrelation.

rafrods
Posts: 9
Joined: Mon Apr 05, 2021 5:32 pm

Re: Fixed Effects or GMM-System? Panel Data Estimation GDP x Social Spending of Municipalities

Postby rafrods » Wed May 05, 2021 3:06 pm

Thank you!


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