Econometric Analysis of Panel Data

• Introduction
– Panel Data Definition
yit , xit (t  1, 2,..., Ti ; i  1,..., N )
• Unbalanced Panel
• Balanced Panel: Ti  T , i
• Short Panel: T  , N  
• Long Panel: T  , N  
– Panel Data Analysis
yit  xit   ui  eit
• Unobserved Heterogeneity
• Cross Section and Time Series Correlation
• Using Stata (stata_intro)
 Introduction
• Panel Data
– Definition (Wikipedia Encyclopedia)
– Examples of Panel Datasets
• Panel Study of Income Dynamics (PSID)
• Penn World Table (PWT)
• Panel Data Analysis
– A Primer for Panel Data Analysis (Yaffee)
 Using Stata
• Declare Panel Data and Variables
– xtset (or tsset)
– xttab
• Panel Data Analysis: xt commands
– xtdes
– xtsum
– xtdata
– xtline
• Panel Data Regression
– xtreg
 Using Stata
• Hypothesis Testing
– xthausman
– xttest0
• Advanced Topics
– xtregar
– xthtaylor (Hausman-Taylor Estimator)
– xtivreg (Instrumental Variables Estimation)
– xtabond (Arellano-Bond Estimator)
 Example: Investment Demand
• Grunfeld and Griliches [1960]
I it   i   Fit   Cit   it

– i = 10 firms: GM, CH, GE, WE, US, AF, DM, GY, UN,
IBM; t = 20 years: 1935-1954
– Iit = Gross investment
– Fit = Market value
– Cit = Value of the stock of plant and equipment
Example: International Comparison
of Economic Growth
• R. Summers and A. Heston, "The Penn World
Table (Mark 5): An Expanded Set of
International Comparisons, 1950-1988,"
Quarterly Journal of Economics 106, 1991,
327-368.
• G. Mankiw, D. Romer, and D. Weil, "A
Contribution to the Empirics of Economic
Growth,“ Quarterly Journal of Economics 107,
1992, 407-437.
Example: International Comparison
of Economic Growth
yit   t   yit 1   ln( si )   ln(ni  g   )   COM i   OPECi   it

• yit = Real per capita GDP

• si = Average saving rate (over 1960-1985)
• ni = Average population growth rate (over 1960-1985)
• g+ = 5%
• COMi = 1 if communist, 0 otherwise
• OPECi =1 if OPEC, 0 otherwise
 Example: Returns to Schooling
• Cornwell and Rupert Data, 595
Individuals, 7 Years
• These data were analyzed in Cornwell, C. and
Rupert, P., "Efficient Estimation with Panel Data:
An Empirical Comparison of Instrumental
Variable Estimators," Journal of Applied
Econometrics, 3, 1988, pp. 149-155. See
Baltagi, page 122 for further analysis.
 Example: Returns to Schooling
• LWAGE = log of wage = dependent variable in regressions
• EXP = work experience
WKS = weeks worked
OCC = occupation, 1 if blue collar,
IND = 1 if manufacturing industry
SOUTH = 1 if resides in south
SMSA = 1 if resides in a city (SMSA)
MS = 1 if married
FEM = 1 if female
UNION = 1 if wage set by union contract
ED = years of education
BLK = 1 if individual is black
 Example: Wage Equation
• Koop and Tobias [2004]
• The data is available in two parts:
– Part 1: Time-Variant Data (17,919 obs.)
• id= Person id (ranging from 1 to 2178)
• ed = Education
• lwage = Log of hourly wage
• pexp = Potential experience
• trend = Time trend
 Example: Wage Equation
– Part 2: Time-Invariant Data (2178 individuals)
• ability = Time invariant ability
• medu = Mother’s education
• fedu= Father’s education
• d = Dummy variable for residence in a broken home
• siblings = Number of siblings.
 Example: U. S. Productivity
• Munnell [1988] Productivity Data
48 Continental U.S. States, 17 Years:1970-1986
– STATE = State name,
– ST ABB=State abbreviation,
– YR =Year, 1970, . . . ,1986,
– PCAP =Public capital,
– HWY =Highway capital,
– WATER =Water utility capital,
– UTIL =Utility capital,
– PC =Private capital,
– GSP =Gross state product,
– EMP =Employment,