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Dynamic Panel Data Analysis

Defining Panel Data Analysis

The behavioral and social sciences are a different breed of cat. Because human beings are so changeable it can be difficult to have a fixed piece of data to observe and study. Time is something that has to be allowed for in any analysis, as well as more than one dimension of study. Panel data analysis will take a look at many phenomena that have been observed over a number of time periods for the same individuals. Dynamic panel data analysis has been used in situations where cross-section or time series procedures are insufficient.

statistical data analysis schema

Panel Data Analysis Example

Panel data analysis as well as functional data analysis is particularly valuable in the area of finances and economics. It can be used for topical areas such as different rates of economic growth amongst a number of countries over a period of years. It can allow for average savings rate and average preparation growth rate. The panel data analysis can also factor if a country is part of one group or another (a possibility would be to group the NATO countries in one and create a factor for other separate countries).  Panel data analysis can also consider how a certain life events such as schooling can impact on wage potential over a period of years. These are all situations where there is a time sequence involved and a number of phenomena can be added into the analytical equation.

Panel Data Analysis in Stata

Any analysis of a large number of variables is made easier with the use of software. Stata is a statistical software package that is particularly valuable in sociology, political science, and economics. Stata has various commands that can be used to prepare panel data for analysis. Some of distinctions within the panel data analysis in stata in include the following:

  • A short panel will have many entities, but very few time periods;
  • Conversely, a long panel is going to have quite a few time periods, but fewer entities;
  • The short panel is wide in its cross-sectional and short in time series, and the long panel will be narrow in width;
  • Care is to be taken regarding the number of entities. There can be difficulty if the number is too small or too large.

Stata will also take into consideration the balance panel, where all of the entities will have measurements in all of the periods of time. Unbalanced panel data will have occurrences when each entity in the set will have a different number of observations. Stata will be able to handle either the balance or the unbalanced panels

The use in economics and finances of panel data analysis is undeniable. The dynamic panel data analysis is able to use any lags in dependent variables as explanatory variables define unexpected results.

Panel data analysis can be extremely important in issues of wage or economic growth. It is the kind of tool that economists can use to their best advantage!