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Exam type: Part A: Seen Materials supplied: Davidson and MacKinnon tables Materials permitted: Calculator SECTION A This section is compulsory. 1. (a) What are the advantages of applying panel data analysis compared to using pure cross sectional or time series approaches to modelling data?…

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2. By using or combining several time series of cross section observations, panel data provide “more informative data, more variability, less collinearity among variables, more degrees of freedom and efficiency” as per Baltagi’s discussion (1995, p. 3-6). 3. Panel data are able to study better the dynamics of change because the panel data technique is able to cover repeated cross section of observation across time. Thus, panel data is believed to more appropriate than either of the two methods (cross section and time series analysis) in the study of situations like successive waves of minimum wage increases across localities and local minimum wages and over time 4. Panel data can detect and measure effects better than what purely time series and cross-section data can do. 5. Panel data are able to study complicated behavioural models like economies of scale and technical change---better than what pure time series and pure cross-section analysis can do. For example, panel data can study the interaction of the variables involved over time, which cannot be done by pure time series data. 6. By covering more units over time, panel data can minimize the biases that may result as data are aggregated. ...
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