Structural changes in heterogeneous panels with endogenous regressors

Badi H. Baltagi, Qu Feng, Chihwa Kao

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

This paper extends Pesaran's (Econometrica, 2006, 74, 967–1012) common correlated effects (CCE) by allowing for endogenous regressors in large heterogeneous panels with unknown common structural changes in slopes and error factor structure. Since endogenous regressors and structural breaks are often encountered in empirical studies with large panels, this extension makes Pesaran's CCE approach empirically more appealing. In addition to allowing for slope heterogeneity and cross-sectional dependence, we find that Pesaran's CCE approach is also valid when dealing with unobservable factors in the presence of endogenous regressors and structural changes in slopes and error factor loadings. This is supported by Monte Carlo experiments.

Original languageEnglish (US)
Pages (from-to)883-892
Number of pages10
JournalJournal of Applied Econometrics
Volume34
Issue number6
DOIs
StatePublished - Sep 1 2019

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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