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Unobserved Heterogeneity in Regression Models: A Semiparametric Approach Based on Nonlinear Sieves

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  • Medeiros, Marcelo C
  • Burity, Priscilla
  • Assunção, Juliano

Abstract

This paper proposes a semiparametric approach to control for unobserved heterogeneity in linear regression models, based on an artificial neural network extremum estimator. We present a procedure to specify the model and use simulations to evaluate its finite sample properties in comparison to alternative methods. The simulations show that our approach is less sensitive to increases in the dimensionality and complexity of the problem. We also use the model to study convergence of per capita income across Brazilian municipalities.

Suggested Citation

  • Medeiros, Marcelo C & Burity, Priscilla & Assunção, Juliano, 2015. "Unobserved Heterogeneity in Regression Models: A Semiparametric Approach Based on Nonlinear Sieves," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 35(1), October.
    • Handle: RePEc:sbe:breart:v:35:y:2015:i:1:a:24305
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    References listed on IDEAS

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    1. Xiaohong Chen & Xiaotong Shen, 1998. "Sieve Extremum Estimates for Weakly Dependent Data," Econometrica, Econometric Society, vol. 66(2), pages 289-314, March.
    2. Chen, Xiaohong, 2007. "Large Sample Sieve Estimation of Semi-Nonparametric Models," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 76, Elsevier.
    3. Nazrul Islam, 2003. "What have We Learnt from the Convergence Debate?," Journal of Economic Surveys, Wiley Blackwell, vol. 17(3), pages 309-362, July.
    4. Bruce Truitt Elmslie, 1995. "Retrospective: The Convergence Debate between David Hume and Josiah Tucker," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 207-216, Fall.
    5. Durlauf, Steven N. & Quah, Danny T., 1999. "The new empirics of economic growth," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 4, pages 235-308, Elsevier.
    6. Chunrong Ai & Xiaohong Chen, 2003. "Efficient Estimation of Models with Conditional Moment Restrictions Containing Unknown Functions," Econometrica, Econometric Society, vol. 71(6), pages 1795-1843, November.
    7. Dani Rodrik, 2013. "Unconditional Convergence in Manufacturing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(1), pages 165-204.
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