Fourth Edition

Econometric Analysis
of Panel Data
BADI H. BALTAGI

Preface

xi

1 Introduction
1.1 Panel Data: Some Examples
1.2 Why Should We Use Panel Data? Their Benefits and Limitations
Note

1
1
6
11

2 The One-way Error Component Regression Model

2.1 Introduction
2.2 The Fixed Effects Model
2.3 The Random Effects Model
2.4 Maximum Likelihood Estimation
2.5 Prediction
2.6 Examples
2.7 Selected Applications
2.8 Computational Note
Notes
Problems

13
13
14
17
22
23
24
31
31
31
32

3 The Two-way Error Component Regression Model

3.1 Introduction
3.2 The Fixed Effects Model
3.3 The Random Effects Model
3.4 Maximum Likelihood Estimation
3.5 Prediction
3.6 Examples
3.7 Selected Applications
Notes
Problems

35
35
35
37
42
44
45
48
50
50

4 Test of Hypotheses with Panel Data

4.1 Tests for Poolability of the Data
4.2 Tests for Individual and Time Effects

57
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63

viii

Contents

4.3 Hausman's Specification Test

4.4 Further Reading
Notes
Problems

72
81
82
82

5 Heteroskedasticity and Serial Correlation in the Error

Component Model
5.1 Heteroskedasticity
5.2 Serial Correlation
Notes
Problems

87
87
92
112
113

6 Seemingly Unrelated Regressions with Error Components

6.1 The One-way Model
6.2 The Two-way Model
6.3 Applications and Extensions
Problems

115
115
116
117
119

7 Simultaneous Equations with Error Components

7.1 Single Equation Estimation
7.2 Empirical Example: Crime in North Carolina
7.3 System Estimation
7.4 The Hausman and Taylor Estimator
7.5 Empirical Example: Earnings Equation Using PSID Data
7.6 Further Reading and Extensions
Notes
Problems

121
121
124
130
133
136
140
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142

8 Dynamic Panel Data Models

8.1 Introduction
8.2 The Arellano and Bond Estimator
8.3 The Arellano and Bover Estimator
8.4 The Ahn and Schmidt Moment Conditions
8.5 The Blundell and Bond System GMM Estimator
8.6 The Keane and Runkle Estimator
8.7 Further Developments
8.8 Empirical Examples
8.9 Further Reading
Notes
Problems

147
147
149
155
158
160
162
164
170
173
178
179

9 Unbalanced Panel Data Models

9.1 Introduction
9.2 The Unbalanced One-way Error Component Model
9.3 Empirical Example: Hedonic Housing
9.4 The Unbalanced Two-way Error Component Mode1

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181
187
191

Contents

9.5 Testing for Individual and Time Effects Using

Unbalanced Panel Data
9.6 The Unbalanced Nested Error Component Model
Notes
Problems

ix

193
196
200
201

10 Special Topics
10.1 Measurement Error and Panel Data
10.2 Rotating Panels
10.3 Pseudo-panels
lOA Altemative Methods of Pooling Time Series of Cross-Section Data
10.5 Spatial Panels
10.6 Short-run vs. Long-run Estimates in Pooled Models
10.7 Heterogeneous Panels
10.8 Count Panel Data
Notes
Problems

205
205
208
210
214
216
219
220
226
233
233

11 Limited Dependent Variables and Panel Data

11.1 Fixed and Random Logit and Probit Models
11.2 Simulation Estimation of Limited Dependent Variable Mode1s with
Panel Data
11.3 Dynamic Panel Data Limited Dependent Variable Models
1104 Selection Bias in Panel Data
11.5 Censored and Truncated Panel Data Models
11.6 Empirical Applications
11.7 Empirical Example: Nurses Labor Supply
11.8 Further Reading
Notes
Problems

237
237

12 Nonstationary Panels
12.1 Introduction
12.2 Panel Unit Roots Tests Assuming Cross-sectional Independence
12.3 Panel Unit Roots Tests Allowing for Cross-sectional Dependence
1204 Spurious Regression in Panel Data
12.5 Panel Cointegration Tests
12.6 Estimation and Inference in Panel Cointegration Models
12.7 Empirical Example: Purchasing Power Parity
12.8 Further Reading
Notes
Problems

273
273
275
284
287
292
298
301
303
308
308

References

311

Index

337

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