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Inference on Time-Invariant Variables using Panel Data: A Pre-Test Estimator with an Application to the Returns to Schooling

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Author Info

  • Jean-Bernard Chatelain

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

  • Kirsten Ralf

    ()
    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

Abstract

This paper proposes a new pre-test estimator of panel data models including time invariant variables based upon the Mundlak-Krishnakumar estimator and an "unrestricted” Hausman-Taylor estimator. The paper evaluates the biases of currently used restricted estimators, omitting the average-over-time of at least one endogenous time-varying explanatory variable. Repeated Between, Ordinary Least Squares, Two stage restricted Between and Oaxaca-Geisler estimator, Fixed Effect Vector Decomposition, Generalized least squares may lead to wrong conclusions regarding the statistical significance of the estimated parameter values of time-invariant variables.

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Bibliographic Info

Paper provided by HAL in its series PSE Working Papers with number hal-00492039.

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Date of creation: 15 Jan 2010
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Handle: RePEc:hal:psewpa:hal-00492039

Note: View the original document on HAL open archive server: http://hal-paris1.archives-ouvertes.fr/hal-00492039
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Related research

Keywords: Time-Invariant Variables; Panel data; Time-Series Cross-Sections; Pre-Test Estimator; Mundlak Estimator; Fixed Effects Vector Decomposition;

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References

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  1. J. A. Hausman & W. E. Taylor, 1980. "Panel Data and Unobservable Individual Effects," Working papers 255, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Hsiao,Cheng, 2003. "Analysis of Panel Data," Cambridge Books, Cambridge University Press, number 9780521522717, October.
  3. Beck, Nathaniel & Katz, Jonathan N., 2001. "Throwing Out the Baby with the Bath Water: A Comment on Green, Kim, and Yoon," International Organization, Cambridge University Press, vol. 55(02), pages 487-495, March.
  4. Baltagi, Badi H. & Bresson, Georges & Pirotte, Alain, 2003. "Fixed effects, random effects or Hausman-Taylor?: A pretest estimator," Economics Letters, Elsevier, vol. 79(3), pages 361-369, June.
  5. Boumahdi, Rachid & Thomas, Alban, 2006. "Instrument relevance and efficient estimation with panel data," Economics Letters, Elsevier, vol. 93(2), pages 305-310, November.
  6. Baltagi, Badi H & Khanti-Akom, Sophon, 1990. "On Efficient Estimation with Panel Data: An Empirical Comparison of Instrumental Variables Estimators," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(4), pages 401-06, Oct.-Dec..
  7. Timo Mitze, 2009. "Endogeneity in Panel Data Models with Time-Varying and Time-Fixed Regressors: To IV or not IV?," Ruhr Economic Papers 0083, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  8. Oaxaca, Ronald L. & Geisler, Iris, 2003. "Fixed effects models with time invariant variables: a theoretical note," Economics Letters, Elsevier, vol. 80(3), pages 373-377, September.
  9. Kelejian, Harry H & Stephan, Scott W, 1983. "Inference in Random Coefficient Panel Data Models: A Correction and Clarification of the Literature," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 249-54, February.
  10. Chamberlain, Gary, 1982. "Multivariate regression models for panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 5-46, January.
  11. Jaya Krishnakumar, 2003. "Time Invariant Variables and Panel Data Models : A Generalised Frisch-Vaugh Theorem and its Implications," Research Papers by the Department of Economics, University of Geneva 2004.01, Département des Sciences Économiques, Université de Genève.
  12. Michael C. Lovell, 1963. "Seasonal Adjustment of Economic Time Series and Multiple Regression," Cowles Foundation Discussion Papers 151, Cowles Foundation for Research in Economics, Yale University.
  13. Cameron,A. Colin & Trivedi,Pravin K., 2005. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9780521848053, October.
  14. Breusch, Trevor & Ward, Michael B & Nguyen, Hoa & Kompas, Tom, 2010. "On the fixed-effects vector decomposition," MPRA Paper 21452, University Library of Munich, Germany.
  15. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  16. Swamy, P A V B & Arora, S S, 1972. "The Exact Finite Sample Properties of the Estimators of Coefficients in the Error Components Regression Models," Econometrica, Econometric Society, vol. 40(2), pages 261-75, March.
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Citations

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Cited by:
  1. Farla, Kristine, 2012. "Institutions and credit," MERIT Working Papers 038, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  2. Chatelain, Jean-Bernard & Ralf, Kirsten, 2014. "Spurious regressions and near-multicollinearity, with an application to aid, policies and growth," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 85-96.

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