Capital adjustment cost and bias in income based dynamic panel models with fixed effects

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Getachew, Yoseph; Bhattarai, Keshab; Basu, Parantap;
(2012)
  • Publisher: Durham University
  • Subject: Adjustment cost of capital | Dynamic panel model, fixed effects, adjustment cost of capital, downward bias | C5 D2 D9 O5. [Downward bias. JEL classifcation] | Dynamic panel model | Fixed effects
    • jel: jel:D2 | jel:C5 | jel:D9 | jel:O5

The fixed effects (FE) estimator of "conditional convergence" in income based dynamic panel models could be biased downward when capital adjustment cost is present. Such a capital adjustment cost means a rising marginal cost of investment which could slow down the conve... View more
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