Comments on: Panel data analysis—advantages and challenges

Abstract

This paper provides an excellent review of panel data methods and their application in economics. Professor Hsiao is the leading authority on panel data econometrics; he wrote the first textbook on the subject that appeared as an econometric society monograph in 1986 with the second edition appearing in 2003. As the author points out in the introduction, it is impossible to do justice to the vast and growing literature on panel data. In my discussion, I will try to complement his review with additional references that the reader might want to read. These papers are discussed in the panel data textbooks cited in the paper including Hsiao (2003), Arellano (2003) and Baltagi (2005). The paper starts by reviewing the advantages of panel data arguing that the proliferation of panel applications in economics is due to the wider availability of panel data in both developed and developing countries. Because of space limitations, the paper does not go into pseudo-panels. These are panels constructed from consumer surveys which may not involve the same individuals or households. It does so, by focusing on cohorts, see Deaton (1985). Also, the paper does not have the space to discuss problems of attrition in panels which can be somewhat alleviated with refreshment samples, or rotating panels, see Biorn (1981). Advantages of panel data over time series data or cross-section data is more degrees of freedom, less multicollinearity, and more variation in the data that results in