Econometric Analysis of Panel Data.ppt

* * * * * * * * * * * * An Appropriate Asymptotic Covariance Matrix Some Observations Assuming the wrong (e.g., nonnested) error structure Still consistent – GLS with the wrong weights Standard errors (apparently) biased downward (Moulton bias) Adding “time” effects or other nonnested effects is “very challenging.” Perhaps do with “fixed” effects (dummy variables). An Application Y1jkt = log of atmospheric sulfur dioxide concentration at observation station k at time t, in country i. H = 2621, 293 stations, 44 countries, various numbers of observations, not equally spaced Three levels, not 4 as in article. Xjkt =1,log(GDP/km2),log(K/L),log(Income), Suburban, Rural,Communist,log(Oil price), average temperature, time trend. Estimates Rotating Panel-1 The structure of the sample and selection of individuals in a rotating sampling design are as follows: Let all individuals in the population be numbered consecutively. The sample in period 1 consists of N, individuals. In period 2, a fraction, met (0 me2 N1) of the sample in period 1 are replaced by mi2 new individuals from the population. In period 3 another fraction of the sample in the period 2, me2 (0 me2 N2) individuals are replaced by mi3 new individuals and so on. Thus the sample size in period t is Nt = {Nt-1 - met-1 + mii }. The procedure of dropping met-1 individuals selected in period t - 1 and replacing them by mit individuals from the population in period t is called rotating sampling. In this framework total number of observations and individuals observed are ΣtNt and N1 + Σt=2 to Tmit respectively. Heshmati, A,“Efficiency measurement in rotating panel data,” Applied Economics, 30, 1998, pp. 919-930 Rotating Panel-2 The outcome of the rotating sample for farms producing dairy products is given in Table 1. Each of the annual sample is composed of four parts or subsamples. For example, in 1980 the sample contains 79, 62, 98, and 74 farms. The first three parts (79, 62, and 98) are those not replaced duri