Determining the number of groups in latent panel structures with an application to income and democracy

By Xun Lu, Liangjun Su. 2017

48 citations recorded by the source corpus.

We consider a latent group panel structure as recently studied by Su, Shi, and Phillips (2016), where the number of groups is unknown and has to be determined empirically. We propose a testing procedure to determine the number of groups. Our test is a residual‐based Lagrange multiplier‐type test. We show that after being appropriately standardized, our test is asymptotically normally distributed under the null hypothesis of a given number of groups and has the power to detect deviations from the null. Monte Carlo simulations show that our test performs remarkably well in finite samples. We apply our method to study the effect of income on democracy and find strong evidence of heterogeneity in the slope coefficients. Our testing procedure determines three latent groups among 74 countries.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/5bcb4ef67713e6453252a81401f220ea27e47ab6

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In Economics and Econometrics

1. Liangjun Su
2. Peter C. B. Phillips
3. Wuyi Wang
4. Seojeong Lee
5. B. Hansen
6. Sainan Jin
7. Xun Lu
8. Xinyu Zhang

Citations in the corpus

• Inference for Iterated GMM Under Misspecification (2021, background): “3), an application of the multivariate CLT for heterogeneous random vectors establishes (42).”
• Homogeneity pursuit in panel data models: Theory and application (2018, methodology): “One approach is to use finite mixture models; see Sun (2005), Kasahara and Shimotsu (2009), and Browning and Carro (2010).”