Time Invariant Variables and Panel Data Models : A Generalised Frisch-Vaugh Theorem and its Implications

Mundlak (1978) showed that when individual effects are correlated with the explanatory variables in an error component (EC) model, the GLS estimator is given by the within. In this paper we bring out some additional interesting properties of the within estimator in Mundlak’s model and go on to show that the within estimator remains valid in an extended EC model with time invariant variables and correlated specific effects. Adding an auxiliary regression to take account of possible correlation between the explanatory variables and the individual effects, we find that not only the elegant results obtained by Mundlak but also the above mentioned special features carry over to the extended case with interesting interpretations. We obtain these results using a generalised version of the Frisch-Waugh theorem, stated and proved in the paper. Finally, for both the EC models with and without time invariant variables we have shown that the estimates of the coefficients of the auxiliary variables can also be arrived at by following a two-step procedure.panel data, error components, correlated effects, within estimator.

Going Beyond Functionings to Capabilities : an Econometric Model to Explain and Estimate Capabilities

Any attempt to operationalise the capability approach necessitates an adequate framework for the measurement of the abstract unobservable multidimensional concept that the term human development stands for. One such attempt is the latent variable approach including principal components, factor analysis and MIMIC models. The first two models provide estimates of the latent variables but are silent on the factors influencing these variables (capabilities in our context). MIMIC models represent a step further in this direction as they include exogenous “causal” variables for the latent factors but the effects go only in one direction i.e. from the “causes” to the latent variables. We argue that some of these causal factors not only influence human development but they are also influenced by it and that unless this feedback mechanism is taken into account we do not have a complete picture of this complex phenomenon. In this paper we present a theoretical framework incorporating the above aspects into a coherent system of causes, effects and interactions, leading to an econometric model which represents a generalisation of existing latent variable models. Estimating the model will enable us to explain the level of capabilities, say how they can be best improved, test our theoretical hypotheses and derive estimators that reflect the actual capabilities rather than just the functionings.human development, capability approach, latent variables, qualitative response, simultaneous equations.

Participation and voting behavior in a direct democracy: a structural model of migration policy in Switzerland

In this paper, we analyze the political economy of immigration policy in a direct democracy setting. We formulate a structural model of voting and participation behavior integrating instrumental and expressive motivations. The model is estimated using data drawn from a survey carried out after a vote in Switzerland in 2000 on a popular initiative proposing to implement immigration restrictions. The model enables us to recover estimates of participation costs and preferences towards immigration and analyze how these preferences are translated into actual political outcomes. The results reveal a substantial gap ("participation bias") between attitudes towards immigration in the general population and the outcome of the vote.

Partial Cointegration

This paper proposes a simple procedure to test the hypothesis of no cointegration against both threshold cointegration and an intermediate possibility that we call partial cointegration. Asymptotic theory is devel- oped, the power of the proposed test is analysed through simulations and an empirical example is provided.

Demand System Estimations and Welfare Comparisons: Application to Indian Household Data

In this study, we explore the relationship between the rank of a demand system and the estimation results both in terms of consumption behaviour and more importantly in terms of welfare analysis. Money-metric utility levels given by equivalent expenditures are taken as welfare indicators for calculating poverty and inequality measures as they incorporate substitution effects due to relative price changes. Estimations are carried out using relevant data concerning Indian households (rural and urban) collected from nation-wide surveys conducted by the National Sample Survey Organisation (NSSO). We find that although the specification does play an important role in the economic explanation of consumer behaviour with some models being more suited than others depending on the pattern of consumption, welfare comparisons do not change significantly from one model specification to the other. On the other hand, there are notable differences between results based on estimated equivalent expenditures and those based on observed real expenditures.Demand system estimation, household surveys, poverty, inequality, India.

On Exact Statistical Properties of Multidimensional Indices Based on Principal Components, Factor Analysis, MIMIC and Structural Equation Models

Recent empirical literature has seen many multidimensional indices emerge as well-being or poverty measures, in particular indices derived from principal components and various latent variable models. Though such indices are being increasingly and widely employed, few studies motivate their use or report the standard errors or confidence intervals associated with these estimators. This paper reviews the different underlying models, reaffirms their appropriateness in this context, examines the statistical properties of resulting indices, gives analytical expressions of their variances and establishes certain exact relationships among the

Spatial Distribution of Welfare Across States and Different Socio-Economic Groups in Rural and Urban India

In this paper we examine the incidence of poverty and inequality across different States and socio-economic groups in order to get a spatial picture of welfare distribution in India. Our welfare indicator is the money-metric measure of utility represented by the equivalent expenditure incorporating substitution effects due to price changes. The indicator was derived by estimating separate demand systems for rural and urban using NSS 55 data. This in turn allowed us to compute different poverty and inequality measures based on these equivalent expenditures and carry out our comparative analysis. We calculated these measures for the major States of India, for different religious groups, according to household type (the type of activity) and according to some social criteria like the level of education of the household head and the type of family structure, separately for both the urban and rural sectors. Results are analysed in detail bringing out interesting features, comparisons and interpretations accompanied by plausible explanations. Further it is also shown that ignoring substitution effects and simply using deflated expenditures may not only alter the estimates of poverty and inequality but also the relative performances across regions and groups.Demand system estimation, household surveys, poverty, inequality, India.

Application of Granger Causality Tests to Revenue and Expenditure of Swiss cantons

This paper applies Granger causality tests to Swiss Cantonal Revenue and Expenditure in levels. It is the first study for Switzerland at the individual regional level and on the basis of vector error correction models distinguishing between long-term and short-term causality. The long-term relation observed either extends from revenue to expenditure, extends from expenditure to revenue, is non-existent or mutual depending on the canton. This confirms the unsuitability of performing the analysis at the aggregate level (all cantons) and shows that policy implications on deficit control and theoretical explanations of public sector growth differ according to the causality observed.Local budget and expenditure, Budget systems and institutional requirements, Deficit, Multiple equation model.

Public policies for wellbeing with justice: A theoretical discussion based on capabilities and opportunities

This article presents a theoretical framework that combines virtues and strengths of the Capability Approach (CA) and Equality of Opportunity (EOp) approach for analyzing public policies that aim to improve individual wellbeing and social justice. We show that neither approach is sufficient on its own for this goal. It is particularly useful to combine the two approaches because the CA offers a positive way of thinking about what wellbeing is, while the EOp Approach provides more formal insights on how to configure public policies to achieve social justice and increase individual wellbeing from a normative perspective. We make the case that EOp in its original (ex-post) conception is too heavily centered on lifestyle outcomes and oblivious to individual heterogeneity. However, we argue that it contains elements that are compatible with the CA rationale from an ex-ante point of view. Individual efforts play a crucial conceptual role in our proposed combination because they influence and are influenced by individual capabilities. Our optimal policy for improving wellbeing with EOp is one that aims to equalize expected capabilities across different groups, characterized by circumstances, through a maximin algorithm. We provide a technical analysis of our optimal policy taking into account the influence of circumstances and policies on efforts and capabilities.