Department of Economics

Faculty of Arts and Social Sciences


Seminar - Upcoming

2013 Asia Summer Institute in Behavioral Economics
Asian Meeting of the Econometric Society 2013
Past Events

Department Seminar


Determining the Number of Groups in Latent Panel Structures

Xun Lu
Hong Kong University of Science and Technology
Date: October 21, Tuesday

Time: 4:00 - 5:30 pm


Silcock Journal Room (AS2 06-23)
National University of Singapore
1 Arts Link, Singapore 117570


Sng Tuan Hwee


We consider a latent group panel structure as recently studied by Su, Shi, and Phillips (2013), 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 LM-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 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 eighty-two countries.