IDEAS home Printed from https://ideas.repec.org/a/taf/emetrv/v33y2014i8p906-935.html
   My bibliography  Save this article

A Test for Slope Heterogeneity in Fixed Effects Models

Author

Listed:
  • Ted Juhl
  • Oleksandr Lugovskyy

Abstract

Typical panel data models make use of the assumption that the regression parameters are the same for each individual cross-sectional unit. We propose tests for slope heterogeneity in panel data models. Our tests are based on the conditional Gaussian likelihood function in order to avoid the incidental parameters problem induced by the inclusion of individual fixed effects for each cross-sectional unit. We derive the Conditional Lagrange Multiplier test that is valid in cases where N → ∞ and T is fixed. The test applies to both balanced and unbalanced panels. We expand the test to account for general heteroskedasticity where each cross-sectional unit has its own form of heteroskedasticity. The modification is possible if T is large enough to estimate regression coefficients for each cross-sectional unit by using the MINQUE unbiased estimator for regression variances under heteroskedasticity. All versions of the test have a standard Normal distribution under general assumptions on the error distribution as N → ∞. A Monte Carlo experiment shows that the test has very good size properties under all specifications considered, including heteroskedastic errors. In addition, power of our test is very good relative to existing tests, particularly when T is not large.

Suggested Citation

  • Ted Juhl & Oleksandr Lugovskyy, 2014. "A Test for Slope Heterogeneity in Fixed Effects Models," Econometric Reviews, Taylor & Francis Journals, vol. 33(8), pages 906-935, November.
    • Handle: RePEc:taf:emetrv:v:33:y:2014:i:8:p:906-935
    DOI: 10.1080/07474938.2013.806708
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/07474938.2013.806708
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/07474938.2013.806708?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hashem Pesaran, M. & Yamagata, Takashi, 2008. "Testing slope homogeneity in large panels," Journal of Econometrics, Elsevier, vol. 142(1), pages 50-93, January.
    2. Toyoda, Toshihisa, 1974. "Use of the Chow Test under Heteroscedasticity," Econometrica, Econometric Society, vol. 42(3), pages 601-608, May.
    3. Jeffrey M. Wooldridge, 2005. "Fixed-Effects and Related Estimators for Correlated Random-Coefficient and Treatment-Effect Panel Data Models," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 385-390, May.
    4. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    5. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 225-238.
    6. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-1294, September.
    7. Swamy, P A V B, 1970. "Efficient Inference in a Random Coefficient Regression Model," Econometrica, Econometric Society, vol. 38(2), pages 311-323, March.
    8. Badi H. Baltagi & James M. Griffin & Weiwen Xiong, 2000. "To Pool Or Not To Pool: Homogeneous Versus Hetergeneous Estimations Applied to Cigarette Demand," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 117-126, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nibbering, D. & Paap, R., 2019. "Panel Forecasting with Asymmetric Grouping," Econometric Institute Research Papers EI-2019-30, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    2. Anatolyev, Stanislav & Sølvsten, Mikkel, 2023. "Testing many restrictions under heteroskedasticity," Journal of Econometrics, Elsevier, vol. 236(1).
    3. Wen Jun & Junaid Waheed & Hadi Hussain & Ihsan Jamil & Denisa Borbášová & Muhammad Khalid Anser, 2020. "Working women and per capita household consumption expenditures; an untouched reality," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(1), pages 35-69.
    4. Feng Xu & Zekai He, 2020. "Testing slope homogeneity in panel data models with a multifactor error structure," Statistical Papers, Springer, vol. 61(1), pages 201-224, February.
    5. Yener Coskun & Burak Sencer Atasoy & Giacomo Morri & Esra Alp, 2018. "Wealth Effects on Household Final Consumption: Stock and Housing Market Channels," IJFS, MDPI, vol. 6(2), pages 1-32, June.
    6. Ding Nan & Pomi Shahbaz & Shamsheer ul Haq & Muhammad Nadeem & Muhammad Imran, 2023. "The Economies’ Ability to Produce Diversified and Complex Goods to Meet the Global Competition: Role of Gross Value Chain, Institutional Quality, and Human Capital," Sustainability, MDPI, vol. 15(8), pages 1-17, April.
    7. Yanling Ding & Binghui Liu & Ping Zhao & Long Feng, 2022. "Rank-based test for slope homogeneity in high-dimensional panel data models," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 85(5), pages 605-626, July.
    8. Rodolphe Desbordes & Markus Eberhardt, 2019. "Gravity," Discussion Papers 2019-02, University of Nottingham, GEP.
    9. Muhammad Ibrahim Shah & Shujaat Abbas & Aminat Olayinka Olohunlana & Avik Sinha, 2023. "The impacts of land use change on biodiversity and ecosystem services: An empirical investigation from highly fragile countries," Sustainable Development, John Wiley & Sons, Ltd., vol. 31(3), pages 1384-1400, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Breitung, Jörg & Salish, Nazarii, 2021. "Estimation of heterogeneous panels with systematic slope variations," Journal of Econometrics, Elsevier, vol. 220(2), pages 399-415.
    2. Aliya Zhakanova Isiksal, 2021. "The financial sector expansion effect on renewable electricity production: case of the BRICS countries," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(6), pages 9029-9051, June.
    3. MacKinnon, J G, 1989. "Heteroskedasticity-Robust Tests for Structural Change," Empirical Economics, Springer, vol. 14(2), pages 77-92.
    4. Manuchehr Irandoust, 2019. "Saving and investment causality: implications for financial integration in transition countries of Eastern Europe," International Economics and Economic Policy, Springer, vol. 16(2), pages 397-416, April.
    5. Jean-Paul Azam & Catherine Bonjean, 1995. "La formation du prix du riz : théorie et application au cas d'Antananarivo (Madagascar) ," Revue Économique, Programme National Persée, vol. 46(4), pages 1145-1166.
    6. Ahlin, Christian & Kim, In Kyung & Kim, Kyoo il, 2021. "Who commits fraud? evidence from korean gas stations," International Journal of Industrial Organization, Elsevier, vol. 76(C).
    7. Martin Biewen & Constantin Weiser, 2014. "An empirical test of marginal productivity theory," Applied Economics, Taylor & Francis Journals, vol. 46(9), pages 996-1020, March.
    8. Anjum, Zeba & Burke, Paul J. & Gerlagh, Reyer & Stern, David I., "undated". "Modeling the Emissions-Income Relationship Using Long-Run Growth Rates," Working Papers 249422, Australian National University, Centre for Climate Economics & Policy.
    9. Tsimpanos, Apostolos & Tsimbos, Cleon & Kalogirou, Stamatis, 2018. "Assessing spatial variation and heterogeneity of fertility in Greece at local authority level," MPRA Paper 100406, University Library of Munich, Germany.
    10. Miao, Yang & Razzaq, Asif & Adebayo, Tomiwa Sunday & Awosusi, Abraham Ayobamiji, 2022. "Do renewable energy consumption and financial globalisation contribute to ecological sustainability in newly industrialized countries?," Renewable Energy, Elsevier, vol. 187(C), pages 688-697.
    11. Nibbering, D. & Paap, R., 2019. "Panel Forecasting with Asymmetric Grouping," Econometric Institute Research Papers EI-2019-30, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    12. Yanli LI, Hongfeng PENG & Hongfeng PENG, 2013. "Inflation Persistence in Nine Latin American Countries: Panel SURKSS Test with a Fourier Function," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 132-143, October.
    13. Caldara, Dario & Iacoviello, Matteo & Molligo, Patrick & Prestipino, Andrea & Raffo, Andrea, 2020. "The economic effects of trade policy uncertainty," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 38-59.
    14. Chung‐Hua Shen & Hsing‐Hua Hsu, 2022. "The determinants of Asian banking crises—Application of the panel threshold logit model," International Review of Finance, International Review of Finance Ltd., vol. 22(1), pages 248-277, March.
    15. Marijke Verpoorten & Lode Berlage, 2004. "Genocide and land scarcity: Can Rwandan rural households manage?," CSAE Working Paper Series 2004-15, Centre for the Study of African Economies, University of Oxford.
    16. Hussein Moghaddam & Robert M. Kunst, 2023. "The Role of Natural Gas in Mitigating Greenhouse Gas Emissions: The Environmental Kuznets Curve Hypothesis for Major Gas-Producing Countries," Sustainability, MDPI, vol. 15(5), pages 1-20, February.
    17. Aladejare, Samson Adeniyi, 2022. "Natural resource rents, globalisation and environmental degradation: New insight from 5 richest African economies," Resources Policy, Elsevier, vol. 78(C).
    18. Ma, Yechi & Chen, Zhiguo & Shinwari, Riazullah & Khan, Zeeshan, 2021. "Financialization, globalization, and Dutch disease: Is Dutch disease exist for resources rich countries?," Resources Policy, Elsevier, vol. 72(C).
    19. Machado, Jose A. F. & Silva, J. M. C. Santos, 2000. "Glejser's test revisited," Journal of Econometrics, Elsevier, vol. 97(1), pages 189-202, July.
    20. Katarzyna Jabłońska, 2018. "Dealing With Heteroskedasticity Within The Modeling Of The Quality Of Life Of Older People," Statistics in Transition New Series, Polish Statistical Association, vol. 19(3), pages 423-452, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:emetrv:v:33:y:2014:i:8:p:906-935. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: http://www.tandfonline.com/LECR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.