Publication Type
Journal Article
Version
submittedVersion
Publication Date
5-2015
Abstract
In this paper, we propose a consistent nonparametric test for linearity in panel data models with interactive fixed effects. To construct the test statistic, we need to estimate the model under the null hypothesis of linearity and then obtain the restricted residuals. We show that after being appropriately centered and standardized, the test statistic is asymptotically normally distributed both under the null hypothesis and a sequence of Pitman local alternatives. To improve the finite sample performance, we propose a bootstrap procedure to obtain the bootstrap p-values. A small set of Monte Carlo simulations illustrates that our test performs well in finite samples. An application to an economic growth data indicates significant nonlinear relationships between economic growth, initial income level and capital accumulation.
Keywords
Common factors, Cross-sectional dependence, Economic Growth, Interactive fixed effects, Linearity, Panel data models, Specification test
Discipline
Econometrics | Economics
Research Areas
Econometrics
Publication
Journal of Econometrics
Volume
186
Issue
1
First Page
222
Last Page
244
ISSN
0304-4076
Identifier
10.1016/j.jeconom.2014.06.018
Publisher
Elsevier
Citation
SU, Liangjun; JIN, Sainan; and ZHANG, Yonghui.
Specification test for panel data models with interactive fixed effects. (2015). Journal of Econometrics. 186, (1), 222-244.
Available at: https://ink.library.smu.edu.sg/soe_research/1499
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/10.1016/j.jeconom.2014.06.018