A Lagrange Multiplier Test for Cross-Sectional Dependence in a Fixed Effects Panel Data Model

  title={A Lagrange Multiplier Test for Cross-Sectional Dependence in a Fixed Effects Panel Data Model},
  author={D P Wolf and John Yinger and G. Cramer},
It is well known that the standard Breusch and Pagan (1980) LM test for cross-equation correlation in a SUR model is not appropriate for testing cross-sectional dependence in panel data models when the number of cross-sectional units (n) is large and the number of time periods (T) is small. In fact, a scaled version of this LM test was proposed by Pesaran (2004) and its finite sample bias was corrected by Pesaran, Ullah and Yamagata (2008). This was done in the context of a heterogeneous panel… CONTINUE READING

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