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Testing Heterogeneity In Panel Data Models With Interactive Fixed Effects, Qihui Chen

Dissertations and Theses Collection (Open Access)

This paper proposes a test for the slope homogeneity in large dimensional panel data models with interactive fixed effects based on a measure of goodness-of-fit (R²). We first obtain, for each cross-sectional unit, the R² from the time series regression of residuals on the constant and observable regressors and then construct the test statistic R² as an equally weighted average of the cross-sectional R²'s. R̄² is close to 0 under the null hypothesis of homogenous slopes and deviates away from 0 otherwise. We show that after being appropriately centered and scaled, R^{2 …}