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P-CRE-DML: A Novel Approach for Causal Inference in Non-Linear Panel Data

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  • Amarendra Sharma

Abstract

This paper introduces a novel Proxy-Enhanced Correlated Random Effects Double Machine Learning (P-CRE-DML) framework to estimate causal effects in panel data with non-linearities and unobserved heterogeneity. Combining Double Machine Learning (DML, Chernozhukov et al., 2018), Correlated Random Effects (CRE, Mundlak, 1978), and lagged variables (Arellano & Bond, 1991) and innovating within the CRE-DML framework (Chernozhukov et al., 2022; Clarke & Polselli, 2025; Fuhr & Papies, 2024), we apply P-CRE-DML to investigate the effect of social trust on GDP growth across 89 countries (2010-2020). We find positive and statistically significant relationship between social trust and economic growth. This aligns with prior findings on trust-growth relationship (e.g., Knack & Keefer, 1997). Furthermore, a Monte Carlo simulation demonstrates P-CRE-DML's advantage in terms of lower bias over CRE-DML and System GMM. P-CRE-DML offers a robust and flexible alternative for panel data causal inference, with applications beyond economic growth.

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  • Amarendra Sharma, 2025. "P-CRE-DML: A Novel Approach for Causal Inference in Non-Linear Panel Data," Papers 2506.23297, arXiv.org.
    • Handle: RePEc:arx:papers:2506.23297
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    1. Victor Chernozhukov & Denis Chetverikov & Mert Demirer & Esther Duflo & Christian Hansen & Whitney Newey & James Robins, 2018. "Double/debiased machine learning for treatment and structural parameters," Econometrics Journal, Royal Economic Society, vol. 21(1), pages 1-68, February.
    2. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1251-1288.
    3. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    4. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    5. Victor Chernozhukov & Whitney K. Newey & Rahul Singh, 2022. "Automatic Debiased Machine Learning of Causal and Structural Effects," Econometrica, Econometric Society, vol. 90(3), pages 967-1027, May.
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