Inference in Unbalanced Panel Data Models with Interactive Fixed Effects
This paper addresses asymptotic inference for interactive fixed-effects estimators in unbalanced panel data under random missingness. Recognizing that existing literature lacks a systematic characterization of how missingness proportions and patterns affect estimation, we derive the asymptotic normality of the estimator under general missing-data mechanisms—establishing the first rigorous theoretical foundation for this setting. We propose a robust inference procedure based on principal component analysis (PCA) that remains valid under high missingness rates. Monte Carlo simulations confirm the method’s reliability even with substantial missingness and demonstrate the robustness of Bai (2009) and Moon–Weidner (2017) frameworks under conditionally random missingness. Applying our approach to reassess the causal effect of democratization on economic growth, we robustly identify a statistically significant positive impact. Our results enhance both the statistical credibility and empirical applicability of interactive fixed-effects models in realistic settings with missing data.