Hi,
I have a macro panel data with 105 countries and 18 years. Under 2sls setting, I regress foreign aid among other exogenous covariates on growth in capital stock and then that growth in capex on growth in jobs in the second stage. I find foreign aid disbursements following a panel unit root, i.e. Yt = a + bXt , Xt = PXt-1 +Et. Can I use the first differenced Xt to address the panel unit root at first stage regression in 2sls FE setting? Will be grateful if some can advise on how to proceed in such a case?
I have a macro panel data with 105 countries and 18 years. Under 2sls setting, I regress foreign aid among other exogenous covariates on growth in capital stock and then that growth in capex on growth in jobs in the second stage. I find foreign aid disbursements following a panel unit root, i.e. Yt = a + bXt , Xt = PXt-1 +Et. Can I use the first differenced Xt to address the panel unit root at first stage regression in 2sls FE setting? Will be grateful if some can advise on how to proceed in such a case?
