Limitations of Fixed-Effects Models for Panel Data

Terrence D. Hill, Andrew P. Davis, J. Micah Roos, Michael French

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Although fixed-effects models for panel data are now widely recognized as powerful tools for longitudinal data analysis, the limitations of these models are not well known. We provide a critical discussion of 12 limitations, including a culture of omission, low statistical power, limited external validity, restricted time periods, measurement error, time invariance, undefined variables, unobserved heterogeneity, erroneous causal inferences, imprecise interpretations of coefficients, imprudent comparisons with cross-sectional models, and questionable contributions vis-à-vis previous work. Instead of discouraging the use of fixed-effects models, we encourage more critical applications of this rigorous and promising methodology. The most important deficiencies—Type II errors, biased coefficients and imprecise standard errors, misleading p values, misguided causal claims, and various theoretical concerns—should be weighed against the likely presence of unobserved heterogeneity in other regression models. Ultimately, we must do a better job of communicating the pitfalls of fixed-effects models to our colleagues and students.

Original languageEnglish (US)
JournalSociological Perspectives
DOIs
StateAccepted/In press - Jan 1 2019

Fingerprint

data analysis
regression
interpretation
methodology
student
time

Keywords

  • critique
  • fixed-effects
  • limitations
  • longitudinal
  • panel data

ASJC Scopus subject areas

  • Sociology and Political Science

Cite this

Limitations of Fixed-Effects Models for Panel Data. / Hill, Terrence D.; Davis, Andrew P.; Roos, J. Micah; French, Michael.

In: Sociological Perspectives, 01.01.2019.

Research output: Contribution to journalArticle

Hill, Terrence D. ; Davis, Andrew P. ; Roos, J. Micah ; French, Michael. / Limitations of Fixed-Effects Models for Panel Data. In: Sociological Perspectives. 2019.
@article{70c4d367a54a45cca24ae792ccbaf5b3,
title = "Limitations of Fixed-Effects Models for Panel Data",
abstract = "Although fixed-effects models for panel data are now widely recognized as powerful tools for longitudinal data analysis, the limitations of these models are not well known. We provide a critical discussion of 12 limitations, including a culture of omission, low statistical power, limited external validity, restricted time periods, measurement error, time invariance, undefined variables, unobserved heterogeneity, erroneous causal inferences, imprecise interpretations of coefficients, imprudent comparisons with cross-sectional models, and questionable contributions vis-{\`a}-vis previous work. Instead of discouraging the use of fixed-effects models, we encourage more critical applications of this rigorous and promising methodology. The most important deficiencies—Type II errors, biased coefficients and imprecise standard errors, misleading p values, misguided causal claims, and various theoretical concerns—should be weighed against the likely presence of unobserved heterogeneity in other regression models. Ultimately, we must do a better job of communicating the pitfalls of fixed-effects models to our colleagues and students.",
keywords = "critique, fixed-effects, limitations, longitudinal, panel data",
author = "Hill, {Terrence D.} and Davis, {Andrew P.} and Roos, {J. Micah} and Michael French",
year = "2019",
month = "1",
day = "1",
doi = "10.1177/0731121419863785",
language = "English (US)",
journal = "Sociological Perspectives",
issn = "0731-1214",
publisher = "University of California Press",

}

TY - JOUR

T1 - Limitations of Fixed-Effects Models for Panel Data

AU - Hill, Terrence D.

AU - Davis, Andrew P.

AU - Roos, J. Micah

AU - French, Michael

PY - 2019/1/1

Y1 - 2019/1/1

N2 - Although fixed-effects models for panel data are now widely recognized as powerful tools for longitudinal data analysis, the limitations of these models are not well known. We provide a critical discussion of 12 limitations, including a culture of omission, low statistical power, limited external validity, restricted time periods, measurement error, time invariance, undefined variables, unobserved heterogeneity, erroneous causal inferences, imprecise interpretations of coefficients, imprudent comparisons with cross-sectional models, and questionable contributions vis-à-vis previous work. Instead of discouraging the use of fixed-effects models, we encourage more critical applications of this rigorous and promising methodology. The most important deficiencies—Type II errors, biased coefficients and imprecise standard errors, misleading p values, misguided causal claims, and various theoretical concerns—should be weighed against the likely presence of unobserved heterogeneity in other regression models. Ultimately, we must do a better job of communicating the pitfalls of fixed-effects models to our colleagues and students.

AB - Although fixed-effects models for panel data are now widely recognized as powerful tools for longitudinal data analysis, the limitations of these models are not well known. We provide a critical discussion of 12 limitations, including a culture of omission, low statistical power, limited external validity, restricted time periods, measurement error, time invariance, undefined variables, unobserved heterogeneity, erroneous causal inferences, imprecise interpretations of coefficients, imprudent comparisons with cross-sectional models, and questionable contributions vis-à-vis previous work. Instead of discouraging the use of fixed-effects models, we encourage more critical applications of this rigorous and promising methodology. The most important deficiencies—Type II errors, biased coefficients and imprecise standard errors, misleading p values, misguided causal claims, and various theoretical concerns—should be weighed against the likely presence of unobserved heterogeneity in other regression models. Ultimately, we must do a better job of communicating the pitfalls of fixed-effects models to our colleagues and students.

KW - critique

KW - fixed-effects

KW - limitations

KW - longitudinal

KW - panel data

UR - http://www.scopus.com/inward/record.url?scp=85070264378&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85070264378&partnerID=8YFLogxK

U2 - 10.1177/0731121419863785

DO - 10.1177/0731121419863785

M3 - Article

AN - SCOPUS:85070264378

JO - Sociological Perspectives

JF - Sociological Perspectives

SN - 0731-1214

ER -