Cornelia 'Hanna' Schmidt wrote:
> I know it is a basic question, but it would be great if you could help me.
> I have a panel dataset for a sample of 50 countries over a period of 40
> years.
>
> How can I test if there is a time trend in the data and how can I correct
> for it?
This has come up before on the list. The easiest answer is to lay out two
alternatives:
(1) use a time counter, either starting from 1 or from the first year in
your dataset;
(2) use dummy variables for each year.
Both have their pros and cons: (1) is more parsimonious, but it doesn't
adequately capture the peaks and troughs of your data; (2) is the exact
opposite. I would probably go for (2), notwithstanding the very large
number of years, because at least then you can adjust the intercept to
suit each individual year in the panel, and thus differences in your
response mean by year don't bias your parameter estimates. The same goes
for country dummies, but unlike time dummies - as I have strongly argued
in previous posts on this list - these are _atheoretical_, and are thus
less meaningful in their interpretation.
I'm not entirely clear what you mean by 'how do I test for the trend?' If
we're talking multivariate models, then simply include them on the RHS and
roll the dice. If you mean post-estimation, you can always start with
-test-.
Hope all that helps.
CLIVE NICHOLAS |t: 0(044)7903 397793
Politics |e: [email protected]
Newcastle University |http://www.ncl.ac.uk/geps
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