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Cross-sectional Dependence in Panel Data Analysis

By Vasilis Sarafidis and Tom Wansbeek

Abstract

This paper provides an overview of the existing literature on panel data models with error cross-sectional dependence. We distinguish between spatial dependence and factor structure dependence and we analyse the implications of weak and strong cross-sectional dependence on the properties of the estimators. We consider estimation under strong and weak exogeneity of the regressors for both T fixed and T large cases. Available tests for error cross-sectional dependence and methods for determining the number of factors are discussed in detail. The finite-sample properties of some estimators and statistics are investigated using Monte Carlo experiments.

Topics: C50 - General, C33 - Models with Panel Data; Longitudinal Data; Spatial Time Series
Year: 2010
DOI identifier: 10.1080/07474938.2011.611458
OAI identifier: oai:mpra.ub.uni-muenchen.de:20367

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