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A moment-based test for individual effects in the error component model with incomplete panels

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  • Wu, Jianhong
  • Qin, Jinxu
  • Ding, Qing

Abstract

This paper proposes a robust test statistic for individual effects in the error component model with incomplete panel data. Specifically, on the base of the difference of variance estimators of the idiosyncratic errors at different levels, we construct a statistic to test for the existence of individual effects, which can be shown to asymptotically normally distributed under the null hypothesis. Power study shows that the test can detect local alternatives distinct at the parametric rate from the null hypothesis and has a larger asymptotic power than the corresponding ANOVA F test when the individual heterogeneity effects are correlated with regressors. Monte Carlo evidence shows that the test statistic has desired finite sample properties. A real data example is analyzed for illustration.

Suggested Citation

  • Wu, Jianhong & Qin, Jinxu & Ding, Qing, 2015. "A moment-based test for individual effects in the error component model with incomplete panels," Statistics & Probability Letters, Elsevier, vol. 104(C), pages 153-162.
    • Handle: RePEc:eee:stapro:v:104:y:2015:i:c:p:153-162
    DOI: 10.1016/j.spl.2015.05.013
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    References listed on IDEAS

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    1. Moulton, Brent R & Randolph, William C, 1989. "Alternative Tests of the Error Components Model," Econometrica, Econometric Society, vol. 57(3), pages 685-693, May.
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    7. Oya, Kosuke, 2004. "Test of random effects with incomplete panel data," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 64(3), pages 409-419.
    8. Ping Wu & Li Xing Zhu, 2010. "An Orthogonality‐Based Estimation of Moments for Linear Mixed Models," Scandinavian Journal of Statistics, Danish Society for Theoretical Statistics;Finnish Statistical Society;Norwegian Statistical Association;Swedish Statistical Association, vol. 37(2), pages 253-263, June.
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    Cited by:

    1. Wu, Jianhong, 2016. "Robust random effects tests for two-way error component models with panel data," Economic Modelling, Elsevier, vol. 59(C), pages 1-8.

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