st: xtabond2 - Post estimation interpretation

[Davide Mare <davide.stata@gmail.com>]

Dear all,

I am struggling to interpret the results I get after using the
xtabond2 command. I have two main questions:

1) Does it make sense to use macroeconomics variables in a cross
country regression explicitly in the specification before the comma
(e.g. unemployment to control for the possible effect of labour
market)?
2) I am not sure on the interpretation of the results I get from the
model I am implementing, specifically on the validity of the
instruments. Find below the main statistics:

Arellano-Bond test for AR(1) in first differences: z =  -1.67  Pr > z =  0.095
Arellano-Bond test for AR(2) in first differences: z =   0.11  Pr > z =  0.916

Sargan test of overid. restrictions: chi2(98)   = 289.36  Prob > chi2 =  0.000
Hansen test of overid. restrictions: chi2(98)   = 188.54  Prob > chi2 =  0.000

Difference-in-Hansen tests of exogeneity of instrument subsets:
Hansen test excluding group:     chi2(88)   = 173.65  Prob > chi2 =  0.000
Difference (null H = exogenous): chi2(10)   =  14.90  Prob > chi2 =  0.136

If my understanding is correct, I have no serial correlation in the
first order errors, second-order GMM residual serial correlation and
the estimation fails to satisfy the Sargan/Hansen test statistics of
overidentifying restrictions. Hence, the instrumental variables I am
using in the estimation are weak.

Thank you in advance for your help.

Davide
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