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A moment-based test for individual effects in the error component model with incomplete panels. (English) Zbl 1327.62096

Summary: This paper proposes a robust test statistic for individual effects in the error component model with incomplete panel data. Specifically, on the base of the difference of variance estimators of the idiosyncratic errors at different levels, we construct a statistic to test for the existence of individual effects, which can be shown to asymptotically normally distributed under the null hypothesis. Power study shows that the test can detect local alternatives distinct at the parametric rate from the null hypothesis and has a larger asymptotic power than the corresponding ANOVA \(F\) test when the individual heterogeneity effects are correlated with regressors. Monte Carlo evidence shows that the test statistic has desired finite sample properties. A real data example is analyzed for illustration.

MSC:

62F05 Asymptotic properties of parametric tests
62H10 Multivariate distribution of statistics
62H15 Hypothesis testing in multivariate analysis
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