Testing a Parametric Function Against a Nonparametric Alternative in IV and GMM Settings

This paper develops a specification test for functional form for models identified by moment restrictions, including IV and GMM settings. The general framework is one where the moment restrictions are specified as functions of data, a finite-dimensional parameter vector, and a nonparametric real function (an infinite-dimensional parameter vector). The null hypothesis is that the real function is parametric. The test is relatively easy to implement and its asymptotic distribution is known. The test performs well in simulation experiments.Generalized method of moments, specification test, nonparametric alternative, LM statistic, generalized arc-sine distribution

The Ill-Posed Problem in Growth Empirics

A problem encountered in growth empirics is that the number of explanatory variables is large compared to the number of observations. This makes it impossible to condition on all regressors when determining if a variable is important. We investigate methods used to resolve this problem: Extreme bounds, Sala-i-Martin’s test, BACE, general-to-specific, minimum t-statistics, BIC and AIC. We prove that the problem in general is ill-posed and that the existing methods are inconsistent. We propose a test and apply it to determine if "good policy" increases the effectiveness of foreign aid on growth. The test rejects inference regarding good policy.AIC; BACE; BIC; extreme bounds; general-to-specific; ill-posed inverse problem; robustness

Growth, Income and Regulation: a Non-Linear Approach

This paper analyzes the effect on GDP growth of income (GDP per capita) and economic regulation. A simple theoretical framework presents two opposing views. We analyze the empirical relation using a non-linear dynamic panel data model with fixed effects. The result shows that the effect of regulation on growth depends on income. For low-income countries, there is little effect of changing regulation. For highly regulated middle-income countries, deregulation can increase growth. For high-income countries, deregulation leads to higher growth. Holding regulation constant, there is catch-up growth with a maximum at an intermediate income level.catch-up growth; economic freedom; fixed effects; GMM; specification tests

Self-Employment among Immigrants: A Last Resort?

Based on unique register data of male immigrants in Denmark, we investigate whether self-employment is used as a last resort. To identify self-employment as a last resort, we define different types of immigrants as a function of transition probabilities between wage-employment, non-employment and self-employment. The transition probabilities are estimated using discrete competing risks models controlling for unobserved heterogeneity and duration dependence. We find that for certain groups of immigrants a large fraction can be characterized as using self-employment as a last resort.discrete competing risks; duration; random effects; self-employment

Self-employment among Immigrants:A last Resort?

Based on unique register data of male immigrants in Denmark, we investigate if immigrants use self-employment as a last resort to avoid non-employment. To identify self-employment as a last resort, we develop a general framework to identify types of indivuduals based on transitions probabilities among all states. The states here are wage-employment, non-employment and self-employment. The transition probabilities are estimated using discrete competing risks models controlling for unobserved heterogeneity and duration dependence. We find that for certain groups of immigrants, a large fraction can be characterized as using self-employment as a last resort. In many developed countries immigrants are more likely to be unemployed, outside the labour force (henceforth non-employed) or self-employed compared to natives. For example, in the empirical application of this paper, 47 % of the 30-50 years old male immigrants t

Testing a Parametric Function Against a Nonparametric Alternative in IV and GMM Settings

This paper develops a specification test for functional form for models identified by moment restrictions, including IV and GMM settings. The general framework is one where the moment restrictions are specified as functions of data, a finite-dimensional parameter vector, and a nonparametric real function (an infinite-dimensional parameter vector). The null hypothesis is that the real function is parametric. The test is relatively easy to implement and its asymptotic distribution is known. The test performs well in simulation experiments.42 p