Table 1 provides an incomplete list of relevant articles whose conclusions are based on the use of this problematic technique. All of these articles use an application of the generalized least squares (GLS) method first described by Parks (1967), a method designed to deal with some common problems that occur in TSCS data. We show that the Parks method produces dramatically inaccurate standard errors when used for the type of data commonly analyzed by students of comparative politics. We then offer a new method that is both easier to implement and produces accurate standard errors.Time-series cross-section data are characterized by having repeated observations on fixed units, such as states or nations. The number of units analyzed would typically range from about 10 to 100, with each unit observed over a relatively long time period (often 20 to 50 years). Both the temporal and spatial properties of TSCS data make the use of ordinary least squares (OLS) problematic. In particular, models for TSCS data often allow for temporally and spatially correlated errors, as well as for heteroscedasticity. Parks proposed a method for dealing with these problems based on GLS.1 The use of this method can lead to dramatic underestimates of parameter variability in common research situations.Why the severe problems with the Parks method? Is it not just an application of well-known GLS? While GLS has optimal properties for TSCS data, it assumes that we have knowledge about the error process that, in practice, we never have. Thus analysts use not GLS, but feasible generalized least squares (FGLS). It is "feasible" because it uses an estimate of the error process, avoiding the GLS assumption that the error process is known. The FGLS formula for standard errors, however, assumes that the error process is known, not estimated. In many applications this is not a problem because the error process has few enough parameters that they can be well estimated. Such is not the case for TSCS models, where the error process has a large number of parameters. This oversight causes estimates of the standard errors of the estimated coefficients to understate their true variability. We provide a measure of how much the Parks standard errors understate true sampling variability, that is, how much the Parks method falsely inflates confidence in the findings of TSCS studies. Unfortunately, it is not possible to provide analytic formulae for the degree of overconfidence introduced by the Parks method. Instead, we provide evidence from Monte Carlo experiments using simulated data to assess the performance of the various estimators. This evidence clearly shows the overconfidence induced by the Parks method. The Parks estimator may understate variability by between 50% and 300% in practical research situations. It is this extreme overconfidence that leads us either to overturn or to cast doubt on the findings of many analyses based on the Parks method.Having demonstrated the problems of the Parks method, we instead advocate a simpler method for estimating ...

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Researchers typically analyze time-series-cross-section data with a binary dependent variable (BTSCS) using ordinary logit or probit. However, BTSCS observations are likely to violate the independence assumption of the ordinary logit or probit statistical model. It is well known that if the observations are temporally related that the results of an ordinary logit or probit analysis may be misleading. In this paper, we provide a simple diagnostic for temporal dependence and a simple remedy. Our remedy is based on the idea that BTSCS data are identical to grouped duration data. This remedy does not require the BTSCS analyst to acquire any further methodological skills, and it can be easily implemented in any standard statistical software package. While our approach is suitable for any type of BTSCS data, we provide examples and applications from the field of Intemnational Relations, where BTSCS data are frequently used. We use our methodology to reassess Oneal and Russett's (1997) findings regarding the relationship between economic interdependence, democracy, and peace. Our analyses show that (1) their finding that economic interdependence is associated with peace is an artifact of their failure to account for temporal dependence yet (2) their finding that democracy inhibits conflict is upheld even taking duration dependence into account.

This article treats the analysis of "time-series-cross-section" (TSCS) data, which has become popular in the empirical analysis of comparative politics and international relations (IR). Such data consist of repeated observations on a series of fixed (nonsampled) units, where the units are of interest in themselves. An example of TSCS data is the post-World War II annual observations on the political economy of OECD nations. TSCS data are also becoming more common in IR studies that use the "dyad-year" design; such data are often complicated by a binary dependent variable (the presence or absence of dyadic conflict). Among the issues considered here are estimation and specification. I argue that treating TSCS issues as an estimation nuisance is old-fashioned; those wishing to pursue this approach should use ordinary least squares with panel correct standard errors rather than generalized least squares. A modern approach models dynamics via a lagged dependent variable or a single equation error correction model. Other modern issues involve the modeling of spatial impacts (geography) and heterogeneity. The binary dependent variable common in IR can be handled by treating the TSCS data as event history data.

In a previous article we showed that ordinary least squares with panel corrected standard errors is superior to the Parks generalized least squares approach to the estimation of time-series-cross-section models. In this article we compare our proposed method with another leading technique, Kmenta's “cross-sectionally heteroskedastic and timewise autocorrelated” model. This estimator uses generalized least squares to correct for both panel heteroskedasticity and temporally correlated errors. We argue that it is best to model dynamics via a lagged dependent variable rather than via serially correlated errors. The lagged dependent variable approach makes it easier for researchers to examine dynamics and allows for natural generalizations in a manner that the serially correlated errors approach does not. We also show that the generalized least squares correction for panel heteroskedasticity is, in general, no improvement over ordinary least squares and is, in the presence of parameter heterogeneity, inferior to it. In the conclusion we present a unified method for analyzing time-series-cross-section data.

This paper deals with a variety of dynamic issues in the analysis of timeseries-cross-section (TSCS) data. While the issues raised are more general, we focus on applications to political economy. We begin with a discussion of specification and lay out the theoretical differences implied by the various types of time series models that can be estimated. It is shown that there is nothing pernicious in using a lagged dependent variable and that all dynamic models either implicitly or explicitly have such a variable; the differences between the models relate to assumptions about the speeds of adjustment of measured and unmeasured variables. When adjustment is quick it is hard to differentiate between the various models; with slower speeds of adjustment the various models make sufficiently different predictions that they can be tested against each other. As the speed of adjustment gets slower and slower, specification (and estimation) gets more and more tricky. We then turn to a discussion of estimation. It is noted that models with both a lagged dependent variable and serially correlated errors can easily be estimated; it is only OLS that is inconsistent in this situation. We then show, via Monte Carlo analysis shows that for typical TSCS data that fixed effects with a lagged dependent variable performs about as well as the much more complicated Kiviet estimator, and better than the Anderson-Hsiao estimator (both designed for panels).