IT and Business Applications Lab : Session 8

Assignment : For the panel data in Produc, find out the best model that fits the data set for panel estimation.

Download and Load the "plm" package. Use the data set "Produc" , a panel data set within plm package for panel estimations.

Calculate values for pooling model.

Calculate values for fixed model.

Calculate values for random model.

Test 1 : Between pooling and fixed model.

Test Details :

H0: Null: the individual index and time based params are all zero
Alternative Hypothesis : atleast one of the index and time based params are non zero

The hypothesis test suggests that the alternative hypothesis has significant effects.
As the p-value is too low.. Null hypothesis is rejected.

Hence Fixed model is better than the pooling model.

Test 2 : Between pooling and random model.

Test Details :

H0: Null: the individual index and time based params are all zero : Pooling Model
Alternative Hypothesis : atleast one of the index and time based params are non zero : Random Model

The hypothesis test suggests that the alternative hypothesis has significant effects.
As the p-value is too low.. Null hypothesis is rejected.

Hence random model is better than the pooling model.

Test 3 : Between fixed and random model.

Test Details :

H0: Null: individual effects are not correlated with any regressor : Random Model
Alternative Hypothesis : Individual effects are correlated : Fixed Model

The hypothesis test suggests that the one of the models is inconsistent.
As the p-value is too low.. Null hypothesis is rejected.

Hence fixed model is better than random model.

Conclusion :

Thus, after a series of tests , we can conclude that fixed model best fits the "Produc" data set for panel data estimations; that is, there is significant correlation observed with the regressor variables and index impact exists.
Hence we would select the "Fixed" model to estimate the panel data in "Produc" data set.