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What you don't see can't hurt you? Panel data analysis and the dynamics of unobservable factors

Hernandez, M. and Pudney, S. (2012) What you don't see can't hurt you? Panel data analysis and the dynamics of unobservable factors. HEDS Discussion Paper 12/6. (Unpublished)

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Abstract

We investigate the consequences of using time-invariant individual effects in panel data models when the unobservables are in fact time-varying. Using data from the British Offending Crime and Justice panel, we estimate a dynamic factor model of the occurrence of a range of illicit activities as outcomes of young people’s development processes. This structure is then used to demonstrate that relying on the assumption of time-invariant individual effects to deal with confounding factors in a conventional dynamic panel data model is likely to lead to spurious “gateway” effects linking cannabis use to subsequent hard drug use.

Item Type: Article
Keywords: Panel data; Dynamic factor models; Individual effects; Illicit drugs; Crime; Gateway effect
Institution: The University of Sheffield
Academic Units: The University of Sheffield > Faculty of Medicine, Dentistry and Health (Sheffield) > School of Health and Related Research (Sheffield) > Health Economics and Decision Science > HEDS Discussion Paper Series
Depositing User: Miss Stephanie Haslam
Date Deposited: 10 May 2012 14:47
Last Modified: 16 Jun 2014 12:00
Status: Unpublished
URI: http://eprints.whiterose.ac.uk/id/eprint/43886

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