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Bias corrections for probit and logit models with two-way fixed effects

Author

Listed:
  • Mario Cruz-Gonzalez

    (Boston University)

  • Iván Fernández-Val

    (Boston University)

  • Martin Weidner

    (University College London)

Abstract

In this article, we present the user-written commands probitfe and logitfe, which fit probit and logit panel-data models with individual and time unobserved effects. Fixed-effects panel-data methods that estimate the unobserved effects can be severely biased because of the incidental parameter problem (Ney- man and Scott, 1948, Econometrica 16: 1–32). We tackle this problem using the analytical and jackknife bias corrections derived in Fern ́andez-Val and Weidner (2016, Journal of Econometrics 192: 291–312) for panels where the two dimensions (N and T) are moderately large. We illustrate the commands with an empirical application to international trade and a Monte Carlo simulation calibrated to this application.

Suggested Citation

  • Mario Cruz-Gonzalez & Iván Fernández-Val & Martin Weidner, 2017. "Bias corrections for probit and logit models with two-way fixed effects," Stata Journal, StataCorp LP, vol. 17(3), pages 517-545, September.
    • Handle: RePEc:tsj:stataj:y:17:y:2017:i:3:p:517-545
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    References listed on IDEAS

    as
    1. Fernández-Val, Iván & Weidner, Martin, 2016. "Individual and time effects in nonlinear panel models with large N, T," Journal of Econometrics, Elsevier, vol. 192(1), pages 291-312.
    2. Geert Dhaene & Koen Jochmans, 2015. "Split-panel Jackknife Estimation of Fixed-effect Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(3), pages 991-1030.
    3. Jinyong Hahn & Whitney Newey, 2004. "Jackknife and Analytical Bias Reduction for Nonlinear Panel Models," Econometrica, Econometric Society, vol. 72(4), pages 1295-1319, July.
    4. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 441-487.
    5. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
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