On The Estimation and Testing of Fixed Effects Panel Data Models with Weak Instruments

This paper studies the asymptotic properties of within groups k-class estimators in a panel data model with weak instruments. Weak instruments are characterized by the coefficients of the instruments in the reduced form equation shrinking to zero at a rate proportional to nTδ ; where n is the dimension of the cross-section and T is the dimension of the time series. Joint limits as (n,T )→∞ show that this within group k-class estimator is consistent if 0 ≤δ ≤ ½ and inconsistent if ½ ≤δ ≤ ∞. Key Words: Weak Instrument; Panel Data; fixed effects; Pitman drift local-to-zero JEL No. C13, C33