Publication Type
Journal Article
Version
publishedVersion
Publication Date
11-2017
Abstract
We consider a latent group panel structure as recently studied by Su, Shi, and Phillips (2014), where the number of groups is unknown and has to be determined empirically. We propose a testing procedure to determine the number of roups. Our test is a residualbased LM-type test. We show that after being appropriately standardized, our test is asymptotically normally distributed under the null hypothesis of a given number of groups and has power to detect deviations from the null. Monte Carlo simulations show that our test performs remarkably well in finite samples. We apply our method to study the effect of income on democracy and find strong evidence of heterogeneity in the slope coefficients. Our testing procedure determines three latent groups among eighty-two countries.
Keywords
Classifier Lasso, Dynamic panel, Latent structure, Penalized least square, Number of groups
Discipline
Econometrics
Research Areas
Econometrics
Publication
Quantitative Economics
Volume
8
Issue
3
First Page
729
Last Page
760
ISSN
1759-7323
Identifier
10.3982/QE517
Publisher
Wiley
Citation
LU, Xun and SU, Liangjun.
Determining the number of groups in latent panel structures with an application to income and democracy. (2017). Quantitative Economics. 8, (3), 729-760.
Available at: https://ink.library.smu.edu.sg/soe_research/1748
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.3982/QE517