For the Grunfeld data,

(a) Perform the tests described in Table 5.4.

(b) Using the unbalanced patterns described in Table 1 of Baltagi and Wu (1999), replicate the Baltagi-Wu LBI and Bhargava, Franzini and Narendranathan (1982) Durbin-Watson test statistics reported in that table. This can be easily done using (xtregar, re lbi) command in Stata.

Table 5.4 Testing for serial correlation and individual effects Null hypothesis Ho Test statistics Asymptotic distribution under Ho 2 Alternative hypothesis HA 1a. 1b. 2. : Ho=0; x=0 or A 0 LMI X2 2 Ho=0; p=0 or p = 0 LM1 H2:00 = >0 LM2 N(0, 1) 3a. X > 0 LM3 N(0, 1) 3b. 4a. 4b. 5a. H: p=0 HA=0 (>0) Hp = 0 ( > 0) Hg=0 (fixed) p> 0 LM3 N(0, 1) X>0 ( > 0) LM4 N(0, 1) p>0 (>0) LM4 N(0, 1) A > 0 (fixed) LM5 N(0, 1) 5b. H: p = 0 (; fixed) p> 0 (i fixed) LM5 N(0, 1) 6 7 H6: AR(1) H7: MA(1) MA(1) BGT1 N(0, 1) AR(1) BGT2 N(0, 1)