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A New View on Panel Econometrics. Is Probit feasible after all ?

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  • Bernard M.S. van Praag

    (University of Amsterdam, the Netherlands)

Abstract

Mundlak (1978) proposed the addition of time averages to the usual panel equation in order to remove the fixed effects bias. We extend this Mundlak equation further by replacing the time-varying explanatory variables by the corresponding deviations from the averages over time, while keeping the time averages in the equation. It appears that regression on this extended equation provides simultaneously the within- and the in- between- estimator, while the pooled data estimator is a weighted average of the within and in-between estimator. In Section 3 we introduce observed and unobserved fixed effects In Section 4 we demonstrate that in this extended setup Probit - estimation on panel data sets does not pose a specific problem. The usual software will do. In Section 5 we give an empirical example.

Suggested Citation

  • Bernard M.S. van Praag, 2015. "A New View on Panel Econometrics. Is Probit feasible after all ?," Tinbergen Institute Discussion Papers 15-112/V, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20150112
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    References listed on IDEAS

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    1. Francis Vella & Marno Verbeek, 1998. "Whose wages do unions raise? A dynamic model of unionism and wage rate determination for young men," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(2), pages 163-183.
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    1. repec:spr:izalbr:v:6:y:2017:i:1:d:10.1186_s40172-017-0058-z is not listed on IDEAS

    More about this item

    Keywords

    Panel data estimation techniques; ordered probit; fixed effects-estimator; within-estimator; pooled regression; between-estimator;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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