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Estimation and Inference for Multi-dimensional Heterogeneous Panel Datasets with Hierarchical Multi-factor Error Structure

Author

Listed:
  • George Kapetanios

    (King’s College London)

  • Laura Serlenga

    (University of Bari "Aldo Moro")

  • Yongcheol Shin

    (University of York)

Abstract

Given the growing availability of large datasets and following recent research trends on multi-dimensional modelling, we develop three dimensional (3D) panel data models with hierarchical error components that allow for strong cross-sectional dependence through unobserved heterogeneous global and local factors. We propose consistent estimation procedures by extending the common correlated effects (CCE) estimation approach proposed by Pesaran (2006). The standard CCE approach needs to be modified in order to account for the hierarchical factor structure in 3D panels. Further, we provide the associated asymptotic theory, including new nonparametric variance estimators. The validity of the proposed approach is confirmed by Monte Carlo simulation studies. We also demonstrate the empirical usefulness of the proposed approach through an application to a 3D panel gravity model of bilateral export flows.

Suggested Citation

  • George Kapetanios & Laura Serlenga & Yongcheol Shin, 2019. "Estimation and Inference for Multi-dimensional Heterogeneous Panel Datasets with Hierarchical Multi-factor Error Structure," SERIES 03-2019, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Jun 2019.
  • Handle: RePEc:bai:series:series_wp_03-2019
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    Cited by:

    1. Yang, Yimin, 2022. "A correlated random effects approach to the estimation of models with multiple fixed effects," Economics Letters, Elsevier, vol. 213(C).
    2. Nicholas L. Brown & Peter Schmidt & Jeffrey M. Wooldridge, 2021. "Simple Alternatives to the Common Correlated Effects Model," Papers 2112.01486, arXiv.org.
    3. Hugo Freeman, 2022. "Multidimensional Interactive Fixed-Effects," Papers 2209.11691, arXiv.org.

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    More about this item

    Keywords

    Multi-dimensional Panel Data Models; Cross-sectional Error Dependence; Unobserved Heterogeneous Global and Local Factors; Multilateral Resistance; The Gravity Model of Bilateral Export Flows;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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