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Title:What you don't see can't hurt you? Panel data analysis and the dynamics of unobservable factors PDF Logo
Authors:Hernández, Mónica
Pudney, Stephen
Issue Date:2011
Series/Report no.:ISER Working Paper Series 2011-13
Abstract:We investigate the consequences of using time-invariant individual effects in panel data models when the unobservables are in fact time-varying. Using data from the British Offending Crime and Justice panel, we estimate a dynamic factor model of the occurrence of a range of illicit activities as outcomes of young people's development processes. This structure is then used to demonstrate that relying on the assumption of time-invariant individual effects to deal with confounding factors in a conventional dynamic panel data model is likely to lead to spurious gateway effects linking cannabis use to subsequent hard drug use.
Subjects:Panel data
Dynamic factor models
Individual effects
Illicit drugs
Crime
Gateway effect
JEL:C33
I18
K42
Document Type:Working Paper
Appears in Collections:ISER Working Paper Series, Institute for Social and Economic Research (ISER), University of Essex

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