Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/313870 
Year of Publication: 
2025
Series/Report no.: 
GLO Discussion Paper No. 1583
Publisher: 
Global Labor Organization (GLO), Essen
Abstract: 
This paper analyzes how interaction effects can be consistently estimated un- der economically plausible assumptions in linear panel models with a fixed T - dimension. We advocate for a correlated interaction term estimator (CITE) and show that it is consistent under conditions that are not sufficient for consistency of the interaction term estimator that is most common in applied econometric work. Our paper discusses the empirical content of these conditions, shows that standard inference procedures can be applied to CITE, and analyzes consistency, relative efficiency, inference, and their finite sample properties in a simulation study. In an empirical application, we test whether labor displacement effects of robots are stronger in countries at higher income levels. The results are in line with our theoretical and simulation results and indicate that standard interaction term estimation underestimates the importance of a country's income level in the relationship between robots and employment and may prematurely reject a null hypothesis about interaction effects in the presence of misspecification.
Subjects: 
panel data
interaction effects
correlated random coefficients
robots
JEL: 
C13
C23
C33
J23
O30
Document Type: 
Working Paper

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