Maximum likelihood estimation of dynamic panel data models with interactive effects : quasi-differencing over time or across ndividuals?

The authors consider the quasi maximum likelihood (MLE) estimation of dynamic panel models with interactive effects based on the Ahn et al. (2001 , 2013 ) quasi-differencing methods to remove the interactive effects. The authors show that the quasi-difference MLE (QDMLE) over time is inconsistent when <mml:math xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink" altimg="E13-001.gif" display="inline"> <mml:mrow> <mml:mi>N</mml:mi> <mml:mo>→</mml:mo> <mml:mi>∞</mml:mi> </mml:mrow> </mml:math>whether T is fixed or goes to infinity. On the other hand, the QDMLE is consistent and asymptotically unbiased if the difference is taken over individuals when T is large whether N is fixed or large. Monte Carlo studies are conducted to compare the performance of the QDMLE using different quasi-difference methods.