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The Stata Journal
Volume 6 Number 4: pp. 482-496

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Testing for cross–sectional dependence in panel–data models

Rafael E. De Hoyos
Development Prospects Group
The World Bank
Washington, DC
Vasilis Sarafidis
University of Sydney
Sydney, Australia
Abstract.   This article describes a new Stata routine, xtcsd, to test for the presence of cross-sectional dependence in panels with many cross-sectional units and few time-series observations. The command executes three different testing procedures—namely, Friedman’s (Journal of the American Statistical Association 32: 675–701) (FR) test statistic, the statistic proposed by Frees (Journal of Econometrics 69: 393–414), and the cross-sectional dependence (CD) test of Pesaran (General diagnostic tests for cross-section dependence in panels [University of Cambridge, Faculty of Economics, Cambridge Working Papers in Economics, Paper No. 0435]). We illustrate the command with an empirical example.
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