Applied Econometrics

Panel Data Exercise

1. This exercise replicates some of the work in Dunne and Perlo Freeman ""The Demand for Military Spending in Developing Countries: A Dynamic Panel Analysis". Defence and Peace Economics, Vol 14, No. 6, 2003, pp 461-474
2. Data is available on the as an excel file here.
3. Article is available as pdf here
4. Do not worry about replicating the actual results just follow the paper in estimating a model of the form of Model 1 in Table 1, using fixed and random effects then estimate a dynamic form of the model, using fixed effects. Calculate the long run coefficients and consider the differences in the results, what they mean and what value the dynamic model results have. Then use Arrelano - Bond method to estimate a dynamic model similar to Table II and interpret them. Again dont worry about replicating the actual results. If you wish you could then consider the limations of the A-B methods and try to use the Blundell and Bond system GMM.