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Which panel data estimator should I use?

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  • W. Robert Reed
  • Haichun Ye

Abstract

This study employs Monte Carlo experiments to evaluate the performances of a number of common panel data estimators when serial correlation and cross-sectional dependence are both present. It focuses on fixed effects models with less than 100 cross-sectional units and between 10 and 25 time periods (such as are commonly employed in empirical growth studies). Estimator performance is compared on two dimensions: (i) root mean square error and (ii) accuracy of estimated confidence intervals. An innovation of our study is that our simulated panel data sets are designed to look like 'real-world' panel data. We find large differences in the performances of the respective estimators. Further, estimators that perform well on efficiency grounds may perform poorly when estimating confidence intervals and vice versa. Our experimental results form the basis for a set of estimator recommendations. These are applied to 'out of sample' simulated panel data sets and found to perform well.

Suggested Citation

  • W. Robert Reed & Haichun Ye, 2009. "Which panel data estimator should I use?," Applied Economics, Taylor & Francis Journals, vol. 43(8), pages 985-1000.
  • Handle: RePEc:taf:applec:v:43:y:2009:i:8:p:985-1000
    DOI: 10.1080/00036840802600087
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    References listed on IDEAS

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    1. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
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    Cited by:

    1. Entorf, Horst, 2011. "Crime, Prosecutors, and the Certainty of Conviction," IZA Discussion Papers 5670, Institute for the Study of Labor (IZA).
    2. Reed, W. Robert & Webb, Rachel S., 2011. "Estimating standard errors for the Parks model: Can jackknifing help?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 5, pages 1-14.
    3. Aguirre, Mariana & Ibikunle, Gbenga, 2014. "Determinants of renewable energy growth: A global sample analysis," Energy Policy, Elsevier, vol. 69(C), pages 374-384.
    4. Bergh, Andreas & Nilsson, Therese, 2010. "Good for Living? On the Relationship between Globalization and Life Expectancy," World Development, Elsevier, vol. 38(9), pages 1191-1203, September.

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