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Cross-sectional Dependence in Panel Data Analysis

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  • Sarafidis, Vasilis
  • Wansbeek, Tom

Abstract

This paper provides an overview of the existing literature on panel data models with error cross-sectional dependence. We distinguish between spatial dependence and factor structure dependence and we analyse the implications of weak and strong cross-sectional dependence on the properties of the estimators. We consider estimation under strong and weak exogeneity of the regressors for both T fixed and T large cases. Available tests for error cross-sectional dependence and methods for determining the number of factors are discussed in detail. The finite-sample properties of some estimators and statistics are investigated using Monte Carlo experiments.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20367.

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Date of creation: Feb 2010
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Handle: RePEc:pra:mprapa:20367

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Keywords: Panel data; Cross-sectional dependence; Spatial dependence; Factor structure; Strong/Weak exogeneity.;

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