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help for xtcsd
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Test for cross-sectional dependence in panel data models

        xtcsd , [pesaran friedman frees abs show]


        
    xtcsd is a post-estimation command for use with cross-section time-series
        data following fe or re models.  You must tsset your data before
        using xtcsd; see help tsset.


Description

        
    xtcsd tests for cross-sectional dependence in Fixed Effects of Random
    Effects panel data models.  One of method's options pesaran friedman or
    frees must be specified.

        
    A standard assumption in panel data models (xtreg) is that the error
    terms are independent across cross-sections.  This assumption is employed
    for identification purposes rather than descriptive accuracy. In the
    context of large T and small N, the LM test statistic proposed by Breusch
    and Pagan (1980) can be used to test for cross-sectional dependence (see
    help xttest2). However, in most cases, cross-sectional time-series data
    sets come in the form of small T and large N. In this case the
    Breusch-Pagan test is not valid.

        
    xtcsd test the hypothesis of cross-sectional independence in panel data
    models with small T and large N by implementing two semi-parametric tests
    proposed by Friedman (1937) and Frees (1995,2004), as well as the
    parametric testing procedure proposed by Pesaran (2004).  xtcsd with
    option pesaran can handle balanced as well as unbalanced panels.


Options

        
    pesaran test for cross-sectional dependence following the methods shown
        in Pesaran (2004). Pesaran's statistic follows a standard normal
        distribution and it is able to handle balanced and unbalanced panels.

        
    friedman test for cross-sectional dependence using Friedman's chi-square
        distributed statistic.  For unbalanced panels Friedman's test uses
        only the observations available for all cross-sectional units.

        
    frees test for cross-sectional dependence using Frees' Q distribution
        (T-asymptotically distributed).  For unbalanced panels Frees' test
        uses only the observations available for all cross-sectional units.

        
    abs computes the average absolute value of the off-diagonal elements of
        the cross-sectional correlation matrix of residuals.

        
    show shows the cross-sectional correlation matrix of residuals.


Notes

        
    The small sample comparative performance of these tests under various
        model specifications is examined in Sarafidis and De Hoyos (2006).


Examples

        
    . use "http://www.econ.cam.ac.uk/phd/red29/xtcsd_baltagi.dta"

        
    . xtreg lngsp lnpcap lnpc lnemp unemp, fe

        
    . xtcsd, frees

        
    . xtcsd, pesaran show

        
    . xtreg lngsp lnpcap lnpc lnemp unemp, re

        
    . xtcsd, friedman show abs


References

        
    Frees, E.W. (1995) `Assessing cross-sectional correlations in panel
        data', Journal of Econometrics, 64, 393-414.

        
    Frees, E.W. (2004) `Longitudinal and panel data: analysis and
        applications in the social sciences', Cambridge University Press.

        
    Friedman, M. (1937) `The use of ranks to avoid the assumption of
        normality implicit in the analysis of variance', Journal of the
        American Statistical Association, 32, 675-701.

        
    Pesaran, M.H. (2004) `General diagnostic tests for cross section
        dependence in panels', Cambridge Working Papers in Economics, 0435,
        University of Cambridge.

        
    Sarafidis, V. and De Hoyos, R.E. (2006) `On testing for cross sectional
        dependence in panel data models', mimeo, University of Cambridge.


Acknowledgements

        
    Our code benefited greatly from Christopher Baum's xttest2. Thanks to
        David Drukker for very useful suggestions.


Authors

Rafael E. De Hoyos, Faculty of Economics, University of Cambridge. red29@cam.ac
> .uk 

Vasilis Sarafidis, Discipline of Econometrics and Business Statistics, Universi
> ty of Sydney. V.Sarafidis@econ.usyd.edu.au


Also see

Manual: [U] 23 Estimation and post-estimation commands
        [XT] xtreg

Online: help for xttest2 (if installed), bpagan (if installed), ivreg2 (if inst
> alled)