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A bias-corrected fixed effects estimator for the dynamic panel data model with exogenous variables

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  • Kao, Chihwa
  • Liu, Long
  • Sun, Rui

Abstract

In this paper, we propose a bias-corrected fixed-effects estimator for the dynamic panel data model with large n and T. It is easy to implement comparing to alternative approaches. We also extend this estimator to accommodate the unit-root case. Monte Carlo simulations show that our estimator yields results similar to the iterative bias-corrected estimator in Bun and Carree (2005) across many simulation setups, but with faster computational speed. An empirical application is also provided to demonstrate the practical benefits of our approach.

Suggested Citation

  • Kao, Chihwa & Liu, Long & Sun, Rui, 2025. "A bias-corrected fixed effects estimator for the dynamic panel data model with exogenous variables," Economics Letters, Elsevier, vol. 254(C).
    • Handle: RePEc:eee:ecolet:v:254:y:2025:i:c:s0165176525002630
    DOI: 10.1016/j.econlet.2025.112426
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    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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