To Pool or Not to Pool: Revisited

• Autores: M. Hashem Pesaran, Qiankun Zhou
• Localización: Oxford bulletin of economics and statistics, ISSN 0305-9049, Vol. 80, Nº. 2, 2018, págs. 185-217
• Idioma: inglés
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• Resumen

  • This paper provides a new comparative analysis of pooled least squares and fixed effects (FE) estimators of the slope coefficients in the case of panel data models when the time dimension (T) is fixed while the cross section dimension (N) is allowed to increase without bounds. The individual effects are allowed to be correlated with the regressors, and the comparison is carried out in terms of an exponent coefficient, δ, which measures the degree of pervasiveness of the FE in the panel. The use of δ allows us to distinguish between poolability of small N dimensional panels with large T from large N dimensional panels with small T. It is shown that the pooled estimator remains consistent so long as δ<1, and is asymptotically normally distributed if δ<1/2, for a fixed T and as N→∞. It is further shown that when δ<1/2, the pooled estimator is more efficient than the FE estimator. We also propose a Hausman type diagnostic test of δ<1/2 as a simple test of poolability, and propose a pretest estimator that could be used in practice. Monte Carlo evidence supports the main theoretical findings and gives some indications of gains to be made from pooling when δ<1/2.