1. PANEL DATA
Development Workshop

2. 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?

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

4. 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]

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

6. 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

7. 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

8. Panel results

9. 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?

10. xttest0

11. 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?

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