Abstract

The study focus on the use of simulated panel data to compare the performance of two methods of analyzing such data. Features of the ordinary least squares model that uses pooled data and fixed effects of the least square dummy variable (LSDV) model were discussed. The samples of size 60 and 100 were generated and replicated five and ten periods respectively. Several statistics (R2, Standard error, t and f distributions) were used in comparing the result of the estimates obtained from the two methods applied to two sample sizes.The comparison of the results showed that the analysis based on the bigger sample is more consistent and efficient than the one based on the smaller sample size and this made the least square dummy variables to be more superior than the pooled data model. The conclusion is that the fixed effects model (LSDV) is superior and better in the analysis of panel data.The study focus on the use of simulated panel data to compare the performance of two methods of analyzing such data. Features of the ordinary least squares model that uses pooled data and fixed effects of the least square dummy variable (LSDV) model were discussed. The samples of size 60 and 100 were generated and replicated five and ten periods respectively. Several statistics (R2, Standard error, t and f distributions) were used in comparing the result of the estimates obtained from the two methods applied to two sample sizes.The comparison of the results showed that the analysis based on the bigger sample is more consistent and efficient than the one based on the smaller sample size and this made the least square dummy variables to be more superior than the pooled data model. The conclusion is that the fixed effects model (LSDV) is superior and better in the analysis of panel data.