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Identification of common factors in panel data growth model

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  • Deniz, Pinar
  • Stengos, Thanasis
  • Yazgan, M. Ege

Abstract

Cross sectional dependence may lead to inconsistent and inefficient estimators and as such misleading inferences when standard panel data techniques such as fixed/random effects are employed. Pesaran (2006) suggests incorporating cross sectional averages in panel data models as approximates of unobserved common factor(s) to deal with cross sectional dependence. In the context of a standard panel growth model we investigate whether these unobserved common factors can be identified and we find that institutional variables and life expectancy are able to adequately identify them.

Suggested Citation

  • Deniz, Pinar & Stengos, Thanasis & Yazgan, M. Ege, 2018. "Identification of common factors in panel data growth model," Economics Letters, Elsevier, vol. 168(C), pages 94-97.
  • Handle: RePEc:eee:ecolet:v:168:y:2018:i:c:p:94-97
    DOI: 10.1016/j.econlet.2018.04.021
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    1. Deniz, Pinar & Stengos, Thanasis & Yazgan, M. Ege, 2018. "Identification of common factors in panel data growth model," Economics Letters, Elsevier, vol. 168(C), pages 94-97.
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    5. Nawaz, Saima, 2015. "Growth effects of institutions: A disaggregated analysis," Economic Modelling, Elsevier, vol. 45(C), pages 118-126.
    6. Pesaran, M. Hashem & Tosetti, Elisa, 2011. "Large panels with common factors and spatial correlation," Journal of Econometrics, Elsevier, vol. 161(2), pages 182-202, April.
    7. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    8. Peter Lorentzen & John McMillan & Romain Wacziarg, 2008. "Death and development," Journal of Economic Growth, Springer, vol. 13(2), pages 81-124, June.
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    Cited by:

    1. Deniz, Pinar & Stengos, Thanasis & Yazgan, M. Ege, 2018. "Identification of common factors in panel data growth model," Economics Letters, Elsevier, vol. 168(C), pages 94-97.
    2. Jeffrey Kouton & Sulpice Amonle, 2021. "Global value chains, labor productivity, and inclusive growth in Africa: empirical evidence from heterogeneous panel methods," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 23(1), pages 1-23, June.

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    More about this item

    Keywords

    Growth model; Panel data; Common factor; Principal component analysis;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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