PANEL DATA Development Workshop

What are we going to do today? Panels – introduction and data properties How to measure distance What comes first: trade or GDP? What else affects trade? Role of currency?

Why panel data? What is the sense of panel data? pooled data in econometrics panels in econometrics long or wide? fixed or random effects?

Gravity model All that theory is ql, but transport costs matter and market size matters: => push and pull Isard (1954), logs by Tinbergen (1962) [what if there were no barriers? „missing trade”], Linneman (1966) [standard macro approach], Anderson (1979) [first theoretical model – expenses based] Helpman-Krugman (1985) [intra-industry trade] Bergstrand (1985) [general equilibrium, one country/one factor] Bergstrand (1989) [H-O model with Lindera hypothesis]

Simplest model Variables: Explained: bilateral trade Explanatory: GDP, populations, distance reg trade gdp pop dist

Panel data Same data, same question, but „sth” consists of groups over time STATA learns that by Set of commands: iis grouping_var tis time_var 2. xtset grouping_var time_var 3. tsset grouping_var time_var (they are all equivalent) Once data are set for panel? xtsum vs sum

Panel regression Do not forget context menu in STATA To find out how to do panel regressions in STATA: Statistics => Longtitudal/panel data Many options already covered: xtset, sum, des, tab (check’em out) Also: linear models Simplest code xtreg trade pop gdp dist

Panel results

How do we know if it makes sense? Different from pooled estimator? What if we add country effects to the pooled estimation? Let’s try areg trade pop gdp dist, absorb(grouping_var) Some we know from the literature and some from experience Linear or in logs? Maybe also non-linear terms and interactions, trade or export share, etc. Should we do fixed or random effects? Are we interested in differences across time or across countries? Between and within R2 tell a different story, no? What do our models say?

xttest0

Huge problem - endogeneity What is first: rich trade more or rich because trade more? how to go around this problem? What is it that we want? Cross country differences? Time evolutions within one country? Test theory?

What do you find on do-file? Declare panel, run simplest models, do graphs, etc Run diagnostics Learn more 