Modeling Dynamics in Time-Series–Cross-Section Political Economy Data
This paper deals with a variety of dynamic issues in the analysis of time- series–cross-section (TSCS) data. While the issues raised are more general, we focus on applications to political economy. We begin with a discussion of specification and lay out the theoretical differences implied by the various types of time series models that can be estimated. It is shown that there is nothing pernicious in using a lagged dependent variable and that all dynamic models either implicitly or explicitly have such a variable; the differences between the models relate to assumptions about the speeds of adjustment of measured and unmeasured variables. When adjustment is quick it is hard to differentiate between the various models; with slower speeds of adjustment the various models make sufficiently different predictions that they can be tested against each other. As the speed of adjustment gets slower and slower, specification (and estimation) gets more and more tricky. We then turn to a discussion of estimation. It is noted that models with both a lagged dependent variable and serially correlated errors can easily be estimated; it is only OLS that is inconsistent in this situation. We then show, via Monte Carlo analysis shows that for typical TSCS data that fixed effects with a lagged dependent variable performs about as well as the much more complicated Kiviet estimator, and better than the Anderson-Hsiao estimator (both designed for panels).
Additional InformationFor research support we thank the National Science Foundation. And earlier version was presented at the Annual Meeting of the Society for Political Methodology, Stanford University, Stanford, CA., July 29-31, 2004. We thank Geof Garrett, Evelyne Huber and John Stephens for providing data and many colleagues who have discussed TSCS issues with us and allowed us to present in various forums. Published as Beck, N., & Katz, J.N. (2011). Modeling dynamics in time-series–cross-section political economy data. Annual Review of Political Science, 14, 331-352.
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