Lee Chuntao wrote
> Can i run the following panel regression with fixed effect ?
>
> y(i,t)=constant+ w(i)' * alpha + x(i,t)'*beta+u(i,t)
>
>
> where w(i) is a vector of individaul specific but time invariant
> variables
> x(i,t) is individual & time variant
> u(i,t) is the residual term
>
> the command i used is : xtreg y w x, fe
> stata dropped the w(i) automatically in the regression, why?
You can't. The fixed-effects model allows different intercepts for each
individual, that is
y_it = constant_i + x_(it)b + u_it
All variables which are constant within persons (all time invariate
variables) are collinear with the individual intercepts. There is no way to
use them in a fixed effects model.
Another way to look at this is by looking at an alternative formulation of
the fixed effects model:
_ _ _
y_it - y_i = (x_it - x_i)* b_1 + (z_it - z_i) * b_2 + u_it
_
If z is constant within time for each individual the term (z_it - z_i)
becomes zero for all observarions.
regards
uli
--
ukohler@sowi.uni-mannheim.de
http://www.sowi.uni-mannheim.de/lesas
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