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Identification of Common Factors in Panel Data Growth Model

Author

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  • Pinar Deniz

    () (Department of Economics, Marmara University)

  • Thanasis Stengos

    () (Department of Economics and Finance, University of Guelph)

  • M. Ege Yazgan

    () (Department of Economics, Istanbul Bilgi University)

Abstract

Cross sectional dependence may lead to inconsistent and inefficient estimators and as such misleading inferences when standard panel data techniques such as fixed/random effects are employed. Pesaran (2006) suggests incorporating cross sectional averages in panel data models as approximates of unobserved common factor(s) to deal with cross sectional dependence. In the context of a standard panel growth model we investigate whether these unobserved common factors can be identified and we find that institutional variables and life expectancy are able to adequately identify them.

Suggested Citation

  • Pinar Deniz & Thanasis Stengos & M. Ege Yazgan, 2018. "Identification of Common Factors in Panel Data Growth Model," Working Papers 1802, University of Guelph, Department of Economics and Finance.
  • Handle: RePEc:gue:guelph:2018-02
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    References listed on IDEAS

    as
    1. Deniz, Pinar & Stengos, Thanasis & Yazgan, M. Ege, 2018. "Identification of common factors in panel data growth model," Economics Letters, Elsevier, vol. 168(C), pages 94-97.
    2. Andrea Bassanini & Stefano Scarpetta, 2001. "Does Human Capital Matter for Growth in OECD Countries?: Evidence from Pooled Mean-Group Estimates," OECD Economics Department Working Papers 282, OECD Publishing.
    3. Robert J. Barro, 1998. "Determinants of Economic Growth: A Cross-Country Empirical Study," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522543.
    4. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    5. Nawaz, Saima, 2015. "Growth effects of institutions: A disaggregated analysis," Economic Modelling, Elsevier, vol. 45(C), pages 118-126.
    6. Pesaran, M. Hashem & Tosetti, Elisa, 2011. "Large panels with common factors and spatial correlation," Journal of Econometrics, Elsevier, vol. 161(2), pages 182-202, April.
    7. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    8. Peter Lorentzen & John McMillan & Romain Wacziarg, 2008. "Death and development," Journal of Economic Growth, Springer, vol. 13(2), pages 81-124, June.
    9. Kunze, Lars, 2014. "Life expectancy and economic growth," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 54-65.
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    11. An, Chong-Bum & Jeon, Seung-Hoon, 2006. "Demographic change and economic growth: An inverted-U shape relationship," Economics Letters, Elsevier, vol. 92(3), pages 447-454, September.
    12. Vasilis Sarafidis & Donald Robertson, 2009. "On the impact of error cross-sectional dependence in short dynamic panel estimation," Econometrics Journal, Royal Economic Society, vol. 12(1), pages 62-81, March.
    13. Chudik, Alexander & Pesaran, M. Hashem, 2015. "Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors," Journal of Econometrics, Elsevier, vol. 188(2), pages 393-420.
    14. Aisen, Ari & Veiga, Francisco José, 2013. "How does political instability affect economic growth?," European Journal of Political Economy, Elsevier, vol. 29(C), pages 151-167.
    15. William Easterly & Jozef Ritzen & Michael Woolcock, 2006. "Social Cohesion, Institutions, And Growth," Economics and Politics, Wiley Blackwell, vol. 18(2), pages 103-120, July.
    16. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
    17. De Hoyos, Rafael E. & Sarafidis, Vasilis, 2006. "Testing for cross-sectional dependence in panel-data models," Stata Journal, StataCorp LP, vol. 6(4), pages 1-15.
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    1. Deniz, Pinar & Stengos, Thanasis & Yazgan, M. Ege, 2018. "Identification of common factors in panel data growth model," Economics Letters, Elsevier, vol. 168(C), pages 94-97.

    More about this item

    Keywords

    Growth Model; Panel Data; Common Factor; Principal Component Analysis;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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