Empirical Economics

, Volume 47, Issue 4, pp 1365–1387 | Cite as

Robust tests for time-invariant individual heterogeneity versus dynamic state dependence

  • Federico Zincenko
  • Walter Sosa-Escudero
  • Gabriel Montes-RojasEmail author


We derive tests for persistent effects in a general linear dynamic panel data context. Two sources of persistent behavior are considered: time-invariant unobserved factors (captured by an individual random effect) and dynamic persistence or “state dependence” (captured by autoregressive behavior). We will use a maximum likelihood framework to derive a family of tests that help researchers learn whether persistence is due to individual heterogeneity, dynamic effect, or both. The proposed tests have power only in the direction they are designed to perform, that is, they are locally robust to the presence of alternative sources of persistence, and consequently, are able to identify which source of persistence is active. A Monte Carlo experiment is implemented to explore the finite sample performance of the proposed procedures. The tests are applied to a panel data series of real GDP growth for the period 1960–2005.


Dynamic panel Local misspecification Random effects Testing 

JEL Classification

C12 C23 



The authors thank the Editor, the Associate Editor and two anonymous referees for comments and suggestions. The authors also thank Hildegart Ahumada and Enrique Kawamura for useful comments to previous versions of this paper. Previous versions of this paper were presented at 2007 LAMES meeting (Bogota, Colombia) and 2007 AAEP meeting (Bahia Blanca, Argentina). This paper was completed while Zincenko was a PhD student at UCLA. All errors are our responsibility.


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Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  • Federico Zincenko
    • 1
  • Walter Sosa-Escudero
    • 2
  • Gabriel Montes-Rojas
    • 3
    • 4
    Email author
  1. 1.Department of EconomicsUniversity of PittsburghPittsburghUSA
  2. 2.Department of EconomicsUniversidad de San Andrés and CONICETVictoria, Buenos AiresArgentina
  3. 3.CONICET-Universidad de San AndrésVictoria, Buenos AiresArgentina
  4. 4.Department of EconomicsCity University LondonLondonUK

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