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.

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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)