Standard econometric methods can overlook individual heterogeneity in empirical work, generating inconsistent parameter estimates in panel data models. We propose the use of methods that allow researchers to easily identify, quantify, and address estimation issues arising from individual slope heterogeneity. We first characterize the bias in the standard fixed effects estimator when the true ec...

Estimating the Causal Effect of Gun Prevalence on Homicide Rates: A Local Average Treatment Effect Approach This paper uses a “local average treatment effect” (LATE) framework in an attempt to disentangle the separate effects of criminal and noncriminal gun prevalence on violence rates. We first show that a number of previous studies have failed to properly address the problems of endogeneity, ...

Trade and Unemployment: What Do the Data Say? This paper documents a robust empirical regularity: in the long-run, higher trade openness is causally associated to a lower structural rate of unemployment. We establish this fact using: (i) panel data from 20 OECD countries, (ii) cross-sectional data on a larger set of countries. The time structure of the panel data allows us to deal with endogene...

We use British panel data to explore the exogenous impact of income on a number of individual health outcomes: general health status, mental health, physical health problems, and health behaviours (drinking and smoking). Lottery winnings allow us to make causal statements regarding the effect of income on health, as the amount won is largely exogenous. These positive income shocks have no signi...

This paper considers a Hausman and Taylor (1981) panel data model that exhibits a Cliff and Ord (1973) spatial error structure. We analyze the small sample properties of a Generalized Moments estimation approach for that model. This spatial Hausman-Taylor estimator allows for endogeneity of the time-varying and time-invariant variables with the individual effects. For this model, the spatial fi...

While theorists differ sharply on the expected economic impact of stock options, typically empirical work has found a positive association between option schemes and firm productivity. However, existing data are limited and may not enable reliable investigation of the productivity effects of different types of option scheme. New panel data for all Finnish publicly listed firms during 1992-2002 ...

For decades, economists have used the hedonic model to estimate demands for the implicit characteristics of differentiated commodities. The traditional cross-sectional approach can recover marginal willingness to pay for characteristics, but has faltered over a difficult endogeneity problem for non-marginal welfare measures. I show that when marginal prices can be reliably estimated, and when p...

Article history: Received 8 February 2013 Received in revised form 1 April 2014 Accepted 5 April 2014 Available online 13 April 2014 This study uses a theoretically justified gravity model of trade to examine the impact of the ASEAN–China Free Trade Agreement (ACFTA) on exports, focusing on trade creation and diversion effects. The model is tested on a sample of 31 countries over the period dat...

This work investigates the commonly observed relationship between marriage and wages among men in Britain using panel data covering the 1990s. We explicitly test several hypotheses developed in the literature to explain this relationship, including the household division of labour and specialisation, differential rates of human capital formation, employer favouritism, and self-selection. After ...

T his article challenges Fixed Effects (FE) modeling as the ‘default’ for time-series-crosssectional and panel data. Understanding different within and between effects is crucial when choosing modeling strategies. The downside of Random Effects (RE) modeling— correlated lower-level covariates and higher-level residuals—is omitted-variable bias, solvable with Mundlak’s (1978a) formulation. Conse...