Title: Determining the number of groups in latent panel structures with an application to income and democracy
Abstract: Quantitative EconomicsVolume 8, Issue 3 p. 729-760 Original ArticlesOpen Access Determining the number of groups in latent panel structures with an application to income and democracy Xun Lu, Xun Lu [email protected] Department of Economics, Hong Kong University of Science and TechnologySearch for more papers by this authorLiangjun Su, Liangjun Su [email protected] School of Economics, Singapore Management University The authors express their sincere appreciation to a co-editor and three anonymous referees for their many constructive comments on the previous versions of the paper. They also thank Stéphane Bonhomme, Xiaohong Chen, Han Hong, Cheng Hsiao, Hidehiko Ichimura, Peter C. B. Phillips, and Katsumi Shimotsu for discussions on the subject matter and valuable comments on the paper. Lu acknowledges support from the Hong Kong Research Grants Council (RGC) under Grant 699513. Su gratefully acknowledges the Singapore Ministry of Education for Academic Research Fund under Grant MOE2012-T2-2-021 and the funding support provided by the Lee Kong Chian Fund for Excellence. All errors are the authors' sole responsibilities. Search for more papers by this author Xun Lu, Xun Lu [email protected] Department of Economics, Hong Kong University of Science and TechnologySearch for more papers by this authorLiangjun Su, Liangjun Su [email protected] School of Economics, Singapore Management University The authors express their sincere appreciation to a co-editor and three anonymous referees for their many constructive comments on the previous versions of the paper. They also thank Stéphane Bonhomme, Xiaohong Chen, Han Hong, Cheng Hsiao, Hidehiko Ichimura, Peter C. B. Phillips, and Katsumi Shimotsu for discussions on the subject matter and valuable comments on the paper. Lu acknowledges support from the Hong Kong Research Grants Council (RGC) under Grant 699513. Su gratefully acknowledges the Singapore Ministry of Education for Academic Research Fund under Grant MOE2012-T2-2-021 and the funding support provided by the Lee Kong Chian Fund for Excellence. All errors are the authors' sole responsibilities. Search for more papers by this author First published: 20 November 2017 https://doi.org/10.3982/QE517Citations: 22 AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Abstract We consider a latent group panel structure as recently studied by Su, Shi, and Phillips (2016), where the number of groups is unknown and has to be determined empirically. We propose a testing procedure to determine the number of groups. Our test is a residual-based Lagrange multiplier-type test. We show that after being appropriately standardized, our test is asymptotically normally distributed under the null hypothesis of a given number of groups and has the power to detect deviations from the null. Monte Carlo simulations show that our test performs remarkably well in finite samples. We apply our method to study the effect of income on democracy and find strong evidence of heterogeneity in the slope coefficients. Our testing procedure determines three latent groups among 74 countries. References 1 Acemoglu, D., S. Johnson, and J. 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