One-Step Robust Estimation of Fixed-Effects Panel Data Models

Abstract

The panel-data regression models are frequently applied to micro-level data, which often suffer from data contamination, erroneous observations, or unobserved heterogeneity. Despite the adverse effects of outliers on classical estimation methods, there are only a few robust estimation methods available for fixed-effect panel data. Aiming at estimation under weak moment conditions, a new estimation approach based on two different data transformation is proposed. Considering several robust estimation methods applied on the transformed data, we derive the finite-sample, robust, and asymptotic properties of the proposed estimators including their breakdown points and asymptotic distribution. The finite-sample performance of the existing and proposed methods is compared by means of Monte Carlo simulations.

Keywords: breakdown point, fixed effects, panel data, robust estimation

JEL Classification: C23