Application of Panel Data Models for Empirical Economic Analysis

Bhattarai, Keshab

Abstract

This chapter reviews important applications of panel data models. The process of substitution of labor by capital as discussed in Karabarbounis and Neiman (2014) and Picketty (2014) have increased the capital share causing reduction in labor share of about 10 percent magnitude, impacts of trade and aid on economic growth. Fixed and random effect estimates show that investment rather than aid was a factor contributing to growth. Exports tied to aid are always harmful for growth of recipient countries. Although the evidence is mixed for the individual economies, there certainly appears trade-offs between unemployment and inflation in the panel of OECD countries as shown by the random- and fixed-effect models in which the Hausman test is in favor of random-effect model. A simple VAR model with two lags on inflation (π i,t ) and unemployment (u i,t ) shows persistence of inflation and unemployment rates among the OECD economies. The ratio of investment to GDP is a significant determinant of growth rates across OECD countries, and FDI contributes positively to growth. Higher tax rates cause lower growth rates, which is intuitive. Overall fit of this model is good because R 2 is 42 percent. Panel data model estimates of food expenditure and house prices in the United Kingdom were quite good fit for the data. Static panel regressions of export share xy, import share my on education share (Educ) and growth rate (g) were significant on the basis of F and χ 2 tests, the random-effect model is recommended by the Breusch-Pagan LM test. These regression results are robust on the grounds of stationarity and cointegration criteria. Common panel unit root tests and Pedroni’s (1999) panel cointegration tests involving my,xy, Educ and g and found a long run relationship. Threshhold panel model developed by Hansen (1997), Caner and Hansen (2004) show how to study regime changes occurring in the real world situation.

Citation

Bhattarai, K. (2019). Application of Panel Data Models for Empirical Economic Analysis. In M. Tsionas (Ed.), Panel Data Econometrics : Empirical Applications (665-708). (https://www.sciencedirect.com/book/9780128158593/panel-data-econometrics). Elsevier. https://doi.org/10.1016/B978-0-12-815859-3.00021-4

• Online Publication Date: Jun 21, 2019
• Publication Date: Jun 21, 2019
• Deposit Date: Feb 1, 2021
• Publisher: Elsevier
• Pages: 665-708
• Edition: https://www.sciencedirect.com/book/9780128158593/panel-data-econometrics
• Book Title: Panel Data Econometrics : Empirical Applications
• Chapter Number: 21
• ISBN: 9780128158593; 9780128158609
• DOI: https://doi.org/10.1016/B978-0-12-815859-3.00021-4
• Keywords: Panel data models; Applications
• Public URL: https://hull-repository.worktribe.com/output/3352509
• Contract Date: Jun 21, 2019