Econometric Analysis Using Panel Data

Introduction Different types of data are generally available for empirical analysis, namely, time series, cross section, and panel. A data set containing observations on a single phenomenon observed over multiple time periods is called time series (e.g., GDP for several quarters or years). In time series data, both the values and the ordering of the data points have meaning. In cross-section data, values of one or more variables are collected for several sample units, or entities, at the same point in time (e.g., crime rates for 50 states in the United States for a given year). Panel data sets refer to sets that consist of both time series and cross section data. This has the effect of expanding the number of observations available, for instance if we have 10 years of data across 10 countries, we have 100 observations. So although there would not be enough to estimate the model as a time series or a cross section, there would be enough to estimate it as a panel. Panel data can be in either a balanced or unbalanced format, a balanced panel is where there is an observation for every unit of observation in the time series and unbalanced where observations are missing. A further benefit is that it can overcome the problem of unobserved heterogeneity in a cross section data set. This occurs where there are unobserved variations in the characteristics of the respondents in a survey based data base.