How can we select the best model among various panel data models? Are there any criteria about it?
Yes, there is one criterion that is discussed in a recently published article. Here is the link to the article:
https://www.researchgate.net/publication/390455358_Determinants_of_firm_performance_How_to_choose_the_best_model_among_panel_data_models
Selecting the best panel data model involves understanding your data's structure (N, T, balanced/unbalanced), your research question (entity effects, unobserved heterogeneity, dynamics), and the assumptions of various models (Pooled OLS, Fixed Effects, Random Effects, Dynamic Panel Data). The process typically involves testing for panel effects [F-test, Breusch-Pagan LM test] and then choosing between Fixed and Random Effects based on the correlation of unobserved effects with regressors [Hausman test]. For dynamic relationships, dynamic models are considered. Ultimately, the chosen model should suit your data's characteristics and research goals, while also addressing potential issues like serial correlation and heteroscedasticity. Statistical tests and a grasp of model assumptions are key to this selection process.
Dear Fatima Bezbiq, you are 100% right. Most of the issues that you mentioned are discussed in the above article.
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