xtpmg or xtmg?

[Sundus Al Riyami]

Hello,

I want to understand the difference between these two estimators and how well they can estimate a panel data with cross-sectional dependence and non stationary variables?

If I want to test the Environmental Kuznets curve for 16 countries across 40 years, which estimator would be more suitable xtmg or xtpmg?

[JanDitzen]

xtmg estimates the MG (mean group) for heterogenous slope models. It can account for strong cross sectional dependence by adding common correlated effects. xtmg is for static models, see the corresponding Stata Journal Article.

xtpmg estimates the pooled mean group estimator. That is a error correction model which assumes a homogenous long run relationship but heterogenous effects in the short run, see the corresponding Stata Journal Article.

In principle both are very different models. They can combined together, see my Stata journal article on xtdcce2 and my article on estimation of long run coefficients.

[Sundus Al Riyami]

Does this mean that xtpmg cannot account for cross-sectional dependence?

[JanDitzen]

Yes, xtpmg does not account for cross-sectional dependence.