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Efficient estimation with panel data: An empirical comparison of instrumental variables estimators
Author(s) -
Cornwell Christopher,
Rupert Peter
Publication year - 1988
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.3950030206
Subject(s) - instrumental variable , estimator , econometrics , panel data , economics , endogeneity , estimation , variables , regression analysis , mathematics , regression , statistics , management
Hausman and Taylor (1981) proposed an efficient instrumental variables estimator for panel data regression models where the individual effects may be correlated with some of the regressors. Amemiya and MacCurdy (1986) and Breusch, Mizon, and Schmidt (1986) have suggested instrumental variables estimators that are potentially more efficient than the Hausman and Taylor estimator. We address the empirical question of how large these efficiency gains might be. In our returns to schooling example noticeable efficiency gains are limited to the coefficients of time‐invariant endogenous variables. This is important, however, since education does not vary over time in our sample.