Mean group estimation in presence of weakly cross-correlated estimators

Abstract

This paper extends the mean group (MG) estimator for random coefficient panel data models by allowing the underlying individual estimators to be weakly cross correlated. This can arise, for example, in panels with spatially correlated errors. We establish that the MG estimator is asymptotically correctly centered, and its asymptotic covariance matrix can be consistently estimated. In contrast with the homogeneous case, the random coefficient specification allows for correct inference even when nothing is known about the weak cross-sectional dependence of the errors.