CCE in heterogenous fixed-T panels

Abstract The present paper shows that the CCE approach of Pesaran (Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure, Econometrica74, 967–1012, 2006) is more useful than commonly appreciated, in that it enables consistent and asymptotically normal estimation of interactive effects models with heterogeneous slope coefficients when the number of time periods, T, is fixed and only the number of cross-sectional units, N, is large.