Dear Stata Users,

I am currently researching on Foreign direct investment in Africa using the Systems GMM method. My measure of FDI is FDI stock into Africa. My preliminary analysis shows that there is a panel heterogeneity in the data. I had read in Hansen, 1982; Newey & West, 1987; and White, (2000) that the GMM model is capable of dealing with unobserved panel heterogeneity. I guess this was a bit tricky as I just grossly assumed heterogeneity. My mentor insists GMM cannot solve the heterogeneity problem in panel data. I removed very small countries from my sample, yet the differences still persist.

All my estimated parameters have acceptable signs and the model performs well(judging from values of Sargan/Hansen tests)

Unfortunately, I haven't come across any work that has dealt with this specific issue or an appropriate justification that can rescue me. I will greatly appreciate the assistance.

Kind regards