Dear Statalist,

In my research, I am using indicators provided by Worldwide Governance Indicator (WGI) to measure Institutional Quality for my countries in the panel data setting. The six individual indicators measuring the different dimension of institutions provided by WGI display a large degree of correlation, given that they measure similar broad concepts, I use Factor Analyses as a tool for variable reduction procedure. However, the usage of FA in a panel context seems to involve some cost - as FA is not capable to account for the panel nature of my data.

I would highly appreciate if some guidance can be provided for the costs involved in using FA in panel data?

Many thanks,