Inference on Time-Invariant Variables using Panel Data: A Pre-Test Estimator with an Application to the Returns to Schooling
Abstract
This paper proposes a new pre-test estimator of panel data models including time invariant variables based upon the Mundlak-Krishnakumar estimator and an "unrestricted” Hausman-Taylor estimator. The paper evaluates the biases of currently used restricted estimators, omitting the average-over-time of at least one endogenous time-varying explanatory variable. Repeated Between, Ordinary Least Squares, Two stage restricted Between and Oaxaca-Geisler estimator, Fixed Effect Vector Decomposition, Generalized least squares may lead to wrong conclusions regarding the statistical significance of the estimated parameter values of time-invariant variables.
Domains
Humanities and Social Sciences Economics and Finance Humanities and Social Sciences Education Humanities and Social Sciences Methods and statistics Statistics [stat] Methodology [stat.ME] Statistics [stat] Statistics Theory [stat.TH] Mathematics [math] Statistics [math.ST] Statistics [stat] Applications [stat.AP]
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