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Generalized Dynamic Panel Data Models with Random Effects for Cross-Section and Time

Tinbergen Institute Discussion Paper No. 12-009/4

54 Pages Posted: 7 Feb 2012  

Geert Mesters

VU University Amsterdam - Faculty of Economics and Business Administration

Siem Jan Koopman

Vrije Universiteit Amsterdam; Tinbergen Institute

Date Written: February 6, 2012

Abstract

An exact maximum likelihood method is developed for the estimation of parameters in a nonlinear non-Gaussian dynamic panel data model with unobserved random individual-specific and time-varying effects. We propose an estimation procedure based on the importance sampling technique. In particular, a sequence of conditional importance densities is derived which integrates out all random effects from the joint distribution of endogenous variables. We disentangle the integration over both the cross-section and the time series dimensions. The estimation method facilitates the flexible modeling of large panels in both dimensions. We evaluate the method in a Monte Carlo study for dynamic panel data models with observations from the Student's t distribution. We finally present an extensive empirical study into the interrelationships between the economic growth figures of countries listed in the Penn World Tables. It is shown that our dynamic panel data model can provide an insightful analysis of common and heterogeneous features in world-wide economic growth.

Keywords: panel data, non-Gaussian, importance sampling, random effects, Student's t, economic growth

JEL Classification: C33, C51, F44

Suggested Citation

Mesters, Geert and Koopman, Siem Jan, Generalized Dynamic Panel Data Models with Random Effects for Cross-Section and Time (February 6, 2012). Tinbergen Institute Discussion Paper No. 12-009/4. Available at SSRN: https://ssrn.com/abstract=2000605 or http://dx.doi.org/10.2139/ssrn.2000605

Geert Mesters (Contact Author)

VU University Amsterdam - Faculty of Economics and Business Administration ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Siem Jan Koopman

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands
+31205986019 (Phone)

HOME PAGE: http://sjkoopman.net

Tinbergen Institute ( email )

Gustav Mahlerplein 117
1082 MS Amsterdam
Netherlands

HOME PAGE: http://personal.vu.nl/s.j.koopman

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