IT lab session 8

Assignment 8 : Panel Data Analysis

We will be doing Panel Data Analysis of "Produc" data

We will be analyzing on three types of model :
      Pooled affect model
      Fixed affect model
      Random affect model

Commands:

Loading data:
> data(Produc , package ="plm")
> head(Produc)

Pooled Affect Model

> pool <- plm(log(pcap)~ log(hwy) + log(water) + log(util) + log(pc) + log(gsp) + log(emp) + log(unemp) , data =Produc, model=("pooling"), index = c("state","year"))
> summary(pool)

Fixed Affect Model:

 

> fixed <- plm(log(pcap)~ log(hwy) + log(water) + log(util) + log(pc) + log(gsp) + log(emp) + log(unemp) , data =Produc, model=("within"), index = c("state","year"))

> summary(fixed)

Random Affect Model:

> random <- plm(log(pcap)~ log(hwy) + log(water) + log(util) + log(pc) + log(gsp) + log(emp) + log(unemp) , data =Produc, model=("random"), index = c("state","year"))

> summary(random)

Comparison

 

The comparison between the models would be a Hypothesis testing based on the following concept:

 

H0: Null Hypothesis: the individual index and time based params are all zero

H1: Alternate Hypothesis: atleast one of the index and time based params is non zero

 

Pooled vs Fixed

 

Null Hypothesis: Pooled Affect Model

Alternate Hypothesis : Fixed Affect Model

 

Command:

> pFtest(fixed,pool)

Result:

Since the p value is negligible so we reject the Null Hypothesis and hence Alternate hypothesis is accepted which is to accept Fixed Affect Model.

Pooled vs Random

 

Null Hypothesis: Pooled Affect Model

Alternate Hypothesis: Random Affect Model

 

Command :

> plmtest(pool)

 

Result:

 

Since the p value is negligible so we reject the Null Hypothesis and hence Alternate hypothesis is accepted which is to accept Random Affect Model.

Random vs Fixed

 

Null Hypothesis: No Correlation . Random Affect Model

Alternate Hypothesis: Fixed Affect Model

 

Command:

 > phtest(fixed,random)

 

Result:

 

Since the p value is negligible so we reject the Null Hypothesis and hence Alternate hypothesis is accepted which is to accept Fixed Affect Model.

Conclusion: 

 

So after making all the comparisons we come to the conclusion that Fixed Affect Model is best suited to do the panel data analysis for "Produc" data set.

 

Hence , we conclude that within the same id i.e. within same "state" there is no variation.