Hello,

I am estimating whether the total value of stocks traded and credit to the private sector has an effect on economic growth. I have done the following regression, - however, I am not entirely sure about the output.

1) Since System GMM runs two equations (in level and in differences) does the (log_rgpc) logged per capita GDP represent the economic growth since it should be differenced? And if yes why do I get a positive value for lagged log real GDP per capita. As I have 68 heterogeneous countries in the dataset, those that are poorer should grow faster, which would imply a negative coefficient of lagged dependent variable.

2) Why is the constant appearing in the output and as significant ? Should it not disappear from the differenced equation that is included inside GMM?

3) Lastly are the instruments set correctly? (all variables are endogenous

xtabond2 log_rgdpc l.log_rgdpc log_Vtraded log_prcreditBI log_trade log_govsize log_school log_infl td*
> , gmm(L.( log_rgdpc log_Vtraded log_prcreditBI log_trade log_govsize log_school log_infl) , lag(. .)col
> lapse ) iv(td*) two robust ar(3)
Favoring space over speed. To switch, type or click on mata: mata set matafavor speed, perm.
td1 dropped due to collinearity
td3 dropped due to collinearity
Warning: Two-step estimated covariance matrix of moments is singular.
Using a generalized inverse to calculate optimal weighting matrix for two-step estimation.
Difference-in-Sargan/Hansen statistics may be negative.

Dynamic panel-data estimation, two-step system GMM
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Group variable: Country_ Number of obs = 266
Time variable : period Number of groups = 68
Number of instruments = 32 Obs per group: min = 2
Wald chi2(10) = 666438.53 avg = 3.91
Prob > chi2 = 0.000 max = 4
--------------------------------------------------------------------------------
| Corrected
log_rgdpc | Coef. Std. Err. z P>|z| [95% Conf. Interval]
---------------+----------------------------------------------------------------
log_rgdpc |
L1. | .9802829 .0497891 19.69 0.000 .882698 1.077868
|
log_Vtraded | .0674185 .021765 3.10 0.002 .0247598 .1100772
log_prcreditBI | .0390558 .0503282 0.78 0.438 -.0595856 .1376972
log_trade | -.0540639 .0848378 -0.64 0.524 -.2203429 .1122151
log_govsize | -.2307904 .1042945 -2.21 0.027 -.4352039 -.0263769
log_school | -.0009442 .1733985 -0.01 0.996 -.3407991 .3389107
log_infl | -.0339016 .0303574 -1.12 0.264 -.0934009 .0255977
td2 | .0325767 .0308417 1.06 0.291 -.0278719 .0930253
td4 | .0120572 .0264087 0.46 0.648 -.0397029 .0638174
td5 | -.048077 .0358614 -1.34 0.180 -.1183642 .0222101
_cons | 1.418038 .5037889 2.81 0.005 .4306302 2.405446
--------------------------------------------------------------------------------
Instruments for first differences equation
Standard
D.(td1 td2 td3 td4 td5)
GMM-type (missing=0, separate instruments for each period unless collapsed)
L(1/4).(L.log_rgdpc L.log_Vtraded L.log_prcreditBI L.log_trade
L.log_govsize L.log_school L.log_infl) collapsed
Instruments for levels equation
Standard
td1 td2 td3 td4 td5
_cons
GMM-type (missing=0, separate instruments for each period unless collapsed)
D.(L.log_rgdpc L.log_Vtraded L.log_prcreditBI L.log_trade L.log_govsize
L.log_school L.log_infl) collapsed
------------------------------------------------------------------------------
Arellano-Bond test for AR(1) in first differences: z = -3.17 Pr > z = 0.002
Arellano-Bond test for AR(2) in first differences: z = 0.19 Pr > z = 0.850
Arellano-Bond test for AR(3) in first differences: z = . Pr > z = .
------------------------------------------------------------------------------
Sargan test of overid. restrictions: chi2(21) = 53.15 Prob > chi2 = 0.000
(Not robust, but not weakened by many instruments.)
Hansen test of overid. restrictions: chi2(21) = 31.34 Prob > chi2 = 0.068
(Robust, but weakened by many instruments.)

Difference-in-Hansen tests of exogeneity of instrument subsets:
GMM instruments for levels
Hansen test excluding group: chi2(14) = 25.72 Prob > chi2 = 0.028
Difference (null H = exogenous): chi2(7) = 5.63 Prob > chi2 = 0.584
iv(td1 td2 td3 td4 td5)
Hansen test excluding group: chi2(18) = 30.12 Prob > chi2 = 0.036
Difference (null H = exogenous): chi2(3) = 1.22 Prob > chi2 = 0.749