Publication at Faculty of Social Sciences, Faculty of Mathematics and Physics, Centre for Economic Research and Graduate Education |
2020
Abstract
Identification of a coefficient associated with a time-invariant regressor (TIR) often relies on the assumption that the TIR is uncorrelated with the unobserved heterogeneity across panel units. We derive an estimator which avoids the random-effects assumption by employing a proxy for the unobserved heterogeneity thus extending the existing results on proxy variables from the cross-sectional literature.
This method is easy to implement using standard routines for linear regression. Monte Carlo evidence shows the proposed estimator performs well is small samples. (C) 2019 Elsevier B.V.
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