ESTIMATING LONG-RUN RELATIONSHIPS FROM DYNAMIC HETEROGENEOUS PANELS

In panel data four procedures are widely used: pooling, aggregating, a veraging group estimates, and cross-section regression. In the static case, if the coefficients differ randomly, all four procedures give un biased estimates of coefficient means. In the dynamic case, when the c oefficients differ across groups, pooling and aggregating give inconsi stent and potentially highly misleading estimates of the coefficients, though the cross-section can provide consistent estimates of the long -run effects. The theoretical results on the properties of the four pr ocedures are illustrated by UK labour demand functions for 38 industri es over 30 years.