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help for ^xttest2^                                            (SJ3-2: st0004_1)
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Breusch-Pagan LM test for cross-sectional correlation in fixed effects model
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    ^xttest2^ 


^xttest2^ is for use with cross-section time-series data, following use of 
^xtreg, fe^ or ^xtgls^, and requiring prior use of ^tis^ or ^tsset^.


Description
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^xttest2^ calculates the Breusch-Pagan statistic for cross-sectional 
independence in the residuals of a fixed effect regression model, following 
Greene (2000, p. 601). ^xtreg, fe^ estimates this model assuming independence 
of the errors. A likely deviation from independent errors in the context of 
pooled cross-section time-series data (or panel data) is likely to be 
contemporaneous correlations across cross-sectional units. These correlations 
are those exploited by Zellner's seemingly unrelated regression (SUR) 
estimator, and this test is provided by ^sureg, corr^ in that context.  
^xttest2^ tests the hypothesis that the residual correlation matrix, computed 
over observations common to all cross-sectional units, is an identity matrix 
of order N_g, where N_g is the number of cross-sectional units. The resulting 
test statistic is distributed Chi-squared(d), where d=N_g * (N_g - 1) /2, 
under the null hypothesis of cross-sectional independence.

In the context of an unbalanced panel, the observations used to calculate 
the test statistic are those available for all cross-sectional units. The 
number of available observations is reported, as is the estimated correlation
matrix of the residuals over cross-sectional units.

Since this routine makes use of Stata's matrix language, it cannot compute
the test if the number of panels in the data exceed 800 (^help matsize^).
If the current matsize is less than the number of panels in the data, the
same problem will arise. 

The test statistic, degrees of freedom and number of available observations 
are placed in the return array.

Note that this Breusch-Pagan test is not that commonly employed to test for
heteroskedasticity.
 

Example
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	. ^use http://fmwww.bc.edu/ec-p/data/greene2000/tbl15-1.dta,clear^

	. ^tsset firm year^
	
	. ^xtreg i f c,fe^
	
	. ^xttest2^
		
	. ^xtgls i f c, p(h)^
	
	. ^xttest2^


References
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Greene, W. 2000. Econometric Analysis. Upper Saddle River, NJ: Prentice--Hall. 


Acknowledgement
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Thanks to Sylvain Friederich for suggesting that this routine be written.
 

Author
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Christopher F Baum, Boston College, USA
baum@@bc.edu


Also see
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On-line:  help for @sureg@, @xttest1@ (if installed), @bpagan@ (if installed)
