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Bayesian Analysis of a Probit Panel Data Model with Unobserved Individual Heterogeneity and Autocorrelated Errors

  • Martin Burda
  • Roman Liesenfeld
  • Jean-Francois Richard

In this paper, we perform Bayesian analysis of a panel probit model with unobserved individual heterogeneity and serially correlated errors. We augment the data with latent variables and sample the unobserved heterogeneity component as one Gibbs block per individual using a flexible piecewise linear approximation to the marginal posterior density. The latent time effects are simulated as another Gibbs block. For this purpose we develop a new user-friendly form of the Efficient Importance Sampling proposal density for an Acceptance-Rejection Metropolis-Hastings step. We apply our method to the analysis of product innovation activity of a panel of German manufacturing firms in response to imports, foreign direct investment and other control variables. The dataset used here was analyzed under more restrictive assumptions by Bertschek and Lechner (1998) and Greene (2004). Although our results differ to a certain degree from these benchmark studies, we confirm the positive effect of imports and FDI on firms' innovation activity. Moreover, unobserved firm heterogeneity is shown to play a far more significant role in the application than the latent time effects.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-321.

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Length: 23 pages
Date of creation: 16 Jun 2008
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-321
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  1. Bertschek, Irene & Lechner, Michael, 1998. "Convenient estimators for the panel probit model," Journal of Econometrics, Elsevier, vol. 87(2), pages 329-371, September.
  2. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, December.
  3. Liesenfeld, Roman & Richard, Jean-Fran├žois, 2004. "Classical and Bayesian Analysis of Univariate and Multivariate Stochastic Volatility Models," Economics Working Papers 2004,12, Christian-Albrechts-University of Kiel, Department of Economics.
  4. Richard, Jean-Francois & Zhang, Wei, 2007. "Efficient high-dimensional importance sampling," Journal of Econometrics, Elsevier, vol. 141(2), pages 1385-1411, December.
  5. Axel Borsch-Supan & Vassilis Hajivassiliou & Laurence J. Kotlikoff & John N. Morris, 1990. "Health, Children, and Elderly Living Arrangements: A Multiperiod-Multinomial Probit Model with Unobserved Heterogeneity and Autocorrelated Errors," NBER Working Papers 3343, National Bureau of Economic Research, Inc.
  6. Richard Paap, 2002. "What are the advantages of MCMC based inference in latent variable models?," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 56(1), pages 2-22.
  7. William Greene, 2002. "Convenient estimators for the panel probit model: Further results," Working Papers 02-06, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. Bertschek, Irene, 1995. "Product and Process Innovation as a Response to Increasing Import and Foreign Direct Investment," Journal of Industrial Economics, Wiley Blackwell, vol. 43(4), pages 341-57, December.
  9. Elisabetta Falcetti & Merxe Tudela, 2006. "Modelling Currency Crises in Emerging Markets: A Dynamic Probit Model with Unobserved Heterogeneity and Autocorrelated Errors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(4), pages 445-471, 08.
  10. Philip Hans Franses, 2006. "On modeling panels of time series," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 60(4), pages 438-456.
  11. Joachim Inkmann, 1999. "Misspecified heteroskedasticity in the panel probit model: A small sample comparison of GMM and SML estimators," CoFE Discussion Paper 99-04, Center of Finance and Econometrics, University of Konstanz.
  12. Dean R. Hyslop, 1999. "State Dependence, Serial Correlation and Heterogeneity in Intertemporal Labor Force Participation of Married Women," Econometrica, Econometric Society, vol. 67(6), pages 1255-1294, November.
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