A simple new test for slope homogeneity in panel data models with interactive effects

• This paper studies testing slope homogeneity in panel data models.
• A Swamy-type test is proposed by incorporating interactive fixed effects.
• The proposed test statistic is asymptotically normal, and has good size and power.

We consider the problem of testing for slope homogeneity in high-dimensional panel data models with a factor error structure. We consider the Swamy-type test for slope homogeneity by incorporating interactive fixed effects. We show that the proposed test statistic is asymptotically normal. Our test allows the explanatory variables to be correlated with the unobserved factors, factor loadings, or with both. Monte Carlo simulations demonstrate that the proposed test has good size control and good power.