Dynamic Probit Models With Network Interdependence and Unobserved Heterogeneity With an Application to Multinational‐Firm Participation in China

Journal of Regional Science, vol. 66, pp. 1265–1297

Abstract

ABSTRACT In many areas of regional/spatial economics, we are faced with analyzing discrete dynamic choice problems of economic agents interacting with some network structure through general equilibrium, input‐output links, or strategic interaction. Stochastic estimating equations for such problems can be difficult for many practitioners to estimate. This paper proposes MCMC estimation approaches based on control functions for estimating dynamic panel probit models where a large number of cross‐sectional units is observed over a short period of time, and cross‐sectional units feature network interdependencies. The proposed approaches enable accounting for dynamic adjustment and different types of cross‐sectional dependence. These features should make the approaches interesting for applications in many empirical contexts. The paper outlines the estimation approaches, illustrates their suitability by simulation examples, and provides an application to study dynamic multinational‐firm participation among regionally connected Chinese firms.

Authors 2

1. Peter H. Egger corresponding

   ETH Zurich · Austrian Institute of Economic Research

   Affiliation as printed

   CEPR Paris France

   CESifo Munich Germany

   ETH Zurich Zurich Switzerland

   WIFO Vienna Austria

2. Michaela Kesina Aachen

   RWTH Aachen University

   Affiliation as printed

   RWTH Aachen University Aachen Germany