On the Fixed-Effects Vector Decomposition

Breusch, Trevor; Ward, Michael B.; Nguyen, Hoa Thi Minh; Kompas, Tom

doi:10.1093/pan/mpq026

Cited by 75 publications

(48 citation statements)

References 24 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…However, critics have been raised against this technique. The decomposition estimator will have higher risk than existing random effect approach, especially if the endogeneity problem of any time-invariant variables is detected (which is the case here, tested below) (Breusch et al, 2011). Therefore, one of the estimation models we apply is random effects.…”

Section: Estimation Methodologymentioning

confidence: 97%

Capital constraints and the performance of entrepreneurial firms in Vietnam

Tran

Santarelli

2013

Industrial and Corporate Change

View full text Add to dashboard Cite

Entrepreneurship has been among the key driving forces of the emergence of a dynamic private sector during the recent decades in Vietnam. This article addresses for Vietnam the questions "how capital constraints affect the performance of family firms" and "how entrepreneurs' human and social capital interact with capital constraints to leverage entrepreneurial income." A panel of 1721 firms in 4 years is used. Results are consistent with the resource dependency approach, indicating an adverse effect of capital constraints on firm performance: firms suffering capital constraints perform substantially better, suggesting that they need more capital simply to finance newly recognized profit opportunities.Human capital plays a vital role in relaxing capital constraints and improves the entrepreneurial performance, whereas the effect of social capital stemming from strong ties and weak ties is limited: strong ties bring emotional support and weak ties give nonfinancial benefits from regular and useful business contacts.Advanced econometric analysis tools to take into account the endogeneity of capital constraints are used to establish relationships among relevant variables.JEL classification: G24, L26, L25, L14.

show abstract

Section: Estimation Methodologymentioning

confidence: 97%

Capital constraints and the performance of entrepreneurial firms in Vietnam

Tran

Santarelli

2013

Industrial and Corporate Change

View full text Add to dashboard Cite

show abstract

“…The FE vector decomposition (FEVD) estimator has been criticized by many in econometrics, who argue that the standard errors are likely to be incorrectly estimated (Breusch et al 2011a(Breusch et al , 2011bGreene 2011aGreene , 2011bGreene , 2012. Plu¨mper and Troeger (2011) provide a method for calculating more appropriate standard errors, and so the FEVD model does work (at least with balanced data) when this method is utilized.…”

Section: Stage 1 (Equation 7) Is Equivalent To the Re Micro Model Stmentioning

confidence: 99%

Explaining Fixed Effects: Random Effects Modeling of Time-Series Cross-Sectional and Panel Data

Bell¹,

Jones²

2014

PSRM

1,127

933

View full text Add to dashboard Cite

This article challenges Fixed Effects (FE) modeling as the ‘default’ for time-series-cross-sectional and panel data. Understanding different within and between effects is crucial when choosing modeling strategies. The downside of Random Effects (RE) modeling—correlated lower-level covariates and higher-level residuals—is omitted-variable bias, solvable with Mundlak's (1978a) formulation. Consequently, RE can provide everything that FE promises and more, as confirmed by Monte-Carlo simulations, which additionally show problems with Plümper and Troeger's FE Vector Decomposition method when data are unbalanced. As well as incorporating time-invariant variables, RE models are readily extendable, with random coefficients, cross-level interactions and complex variance functions. We argue not simply for technical solutions to endogeneity, but for the substantive importance of context/heterogeneity, modeled using RE. The implications extend beyond political science to all multilevel datasets. However, omitted variables could still bias estimated higher-level variable effects; as with any model, care is required in interpretation.

show abstract

“…We also contribute to the controversy over the FEVD estimator proposed by PT, discussed by Greene (2011a) and Breusch et al (2011b), and followed up with responses and rejoinders by Plumper and Troeger (2011), Greene (2011b), Breusch et al (2011a), and Beck (2011). The FEVD estimator of PT is based on a three step procedure, we show that when an intercept is included in the second step of their procedure, then the FEVD estimator is identical to the FEF estimator.…”

Section: Introductionmentioning

confidence: 82%

Estimation of time-invariant effects in static panel data models

Pesaran

Zhou

2016

Econometric Reviews

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. (2007) and conditions under which the two estimators are equivalent are established. It is also shown that the variance estimator proposed for FEVD estimator is inconsistent and its use could lead to misleading inference. Alternative variance estimators are proposed for both FEF and FEF-IV estimators which are shown to be consistent under fairly general conditions. The small sample properties of the FEF and FEF-IV estimators are investigated by Monte Carlo experiments, and it is shown that FEF has smaller bias and RMSE, unless an intercept is included in the second stage of the FEVD procedure which renders the FEF and FEVD estimators identical. The FEVD procedure, however, results in substantial size distortions since it uses incorrect standard errors. We also compare the FEF-IV estimator with the estimator proposed by Hausman and Taylor (1981), when one of the time-invariant regressors is correlated with the fixed effects. Both FEF and FEF-IV estimators are shown to be robust to error variance heteroskedasticity and residual serial correlation. Terms of use: Documents inJEL-Code: C010, C230, C330.

show abstract

On the Fixed-Effects Vector Decomposition

Cited by 75 publications

References 24 publications

Capital constraints and the performance of entrepreneurial firms in Vietnam

Capital constraints and the performance of entrepreneurial firms in Vietnam

Explaining Fixed Effects: Random Effects Modeling of Time-Series Cross-Sectional and Panel Data

Estimation of time-invariant effects in static panel data models

Contact Info

Product

Resources

About