Reviews of Panel Data Application in Econometrics

Using panel data in econometrics analysis has, often, several advantages over cross-sectional or time-series data. Panel data blend the inter-individual differences and intra-individual dynamics. It is frequently argued that ignoring the effects of certain variables in model specification leads to inefficiency of econometric estimates. Therefore, panel data containing information on both the inter-temporal dynamics and the individuality of the entities allow to control the effects of missing or unobserved variables better than cross-sectional data which may be viewed as a panel with T =1, or time series data which is a panel with N=1. Areas of application of panel data modeling have only been increasing over the past years and there is no doubt that the range is going to expand further. This article reviews the structure and application of panel data in econometrics and studies the most relevant tests such as Hausman specification tests of the orthogonality of the random effects and regressors. The present research pays more attention to various panel data unit root and cointegration tests including IPS, LL, MW and CADF which have not been elaborated yet, particularly in the Iranian economic studies.