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Dynamic panels with threshold effect and endogeneity
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DOI：10.1016/j.jeconom.2016.03.005.png)
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Abstract
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This paper addresses an important issue of modeling nonlinear asymmetric dynamics and unobserved individual heterogeneity in the threshold panel data framework, simultaneously. As a general approach, we develop the first-differenced GMM estimator, which allows both threshold variable and regressors to be endogenous. When the threshold variable becomes strictly exogenous, we propose a more efficient two-step least squares estimator. We provide asymptotic theory and develop the testing procedure for threshold effects and the threshold variable exogeneity. Monte Carlo studies provide a support for theoretical predictions. We present an empirical application investigating an asymmetric sensitivity of investment to cash flows. (C) 2016 Elsevier B.V. All rights reserved.
Keywords:
Dynamic panel threshold models
Endogenous threshold effects and regressors
FD-GMM and FD-2SLS
Linearity and exogeneity tests
Investment
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