Cross sectinal dependence
1. Testing cross sectional dependence
Professor Abu Subhi commented as such> There are few tests for testing cross sectional
dependency in panel data. They are, Breusch–Pagan LM test applied when T > N and Pesaran
CD test applied when N > T. Both tests work with balanced and unbalanaced panel.
2. Cross sectional dependency and serial correlation in panel data
Professor Abu Subhi commented >> Cross-sectional correlation (Cross sectional dependence
across entities such as countries) and serial correlation are two different things.
3. What is cross sectional dependence?
Professor Ade Kutu commented as such > It is like people are getting confused as to the right
meaning of cross-sectional dependence. In a simple language, cross-sectional dependence
means for instance, Ade Kutu who is a Nigerian, he is based in South Africa and working in
South Africa. He earns income in South Africa and send money to his family every month in
Nigeria. Now, if Ade Kutu who is working in South Africa should lost his job, it means his family
in Nigeria will be affected as he will no longer be able to send money to his family again every
month. This means that there has been a cross-sectional dependence across entity between
Ade Kutu in South Africa and his family in Nigeria. This simple analysis can be expanded to
macro level. That is why the Pesaran CD (cross-sectional dependence) test is a test for the
correlation of the residual.
4. Tests for cross sectional dependence
Professor Seye Olasehinde-Williams commented as such> Cross sectional dependency in
panel data can be tested by three tests. They are Pesaran CD test, Bruesch Pegan Test and
Corrected LM test.
5. What is cross sectional dependence?
Professor Seye Olasehinde-Williams commented as such> Cross sectional dependence has to
do with impact of shocks in one country on another country when both countries belong in the
panel data set. For example, if we have three Banks. Let's say one of the banks is so big that
the other banks also have business dealings with it, shocks in d big bank may affect the other
ones.However cross sectional dependence is not common in micro data like organizations,
more common in countries. You need to do tests to determine if there is cross sectional
dependence in ur data or not.
6. Diagnostic checking in panel data
Professor Najid Iqbal commented as such > One can use modified wald test for group
heteroskadesticity,, autocorrection by Wooldrigde, and for cross sectional dependence by
7. EVIEWS 9.0, EVIEWS 9.5 and panel data.
Professor Burcu Özcan commented about first generation panel data and also cross section
independence test as such >> Eviews-9 or Eviews 9.5 run first generation panel tests. Also you
can easily do cross section independece tests by these Eviews version
8. Cross sectional dependency test in panel data
Professor Seye Olasehinde-Williams commented as such> Cross secetional dependency in
panel data can be tested by three tests. They are, Pesaran CD test, Bruesch-Pegan test and
corrected LM test.
Meo School of Research
Cross Sectional Dependence in Panel Data
Hossain Academy Note