In panels with fixed effects
the homogeneity assumption is relaxed somewhat by allowing the intercepts in the panel regressions to vary freely over the cross section units, but continues to maintain the error
cross section independence assumption. The random coefficient specification of Swamy
(1970) further relaxes the slope homogeneity assumption, and represents an important
generalization of the random effects model (Hsiao and Pesaran, 2006). In micropanels
where T is small cross section dependence can be dealt with if it can be attributed to
spatial (economic or geographic) effects. Anselin (1988) and Anselin, Le Gallo and Jaye
(2006) provide surveys of the literature on spatial econometrics. A number of studies
have also used measures such as trade or capital flows to capture economic distance, as
in Conley and Topa (2002), Conley and Dupor (2003), and Pesaran, Schuermann and
Weiner (2004)