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st: Fixed effects dummies


From   Cordula Stolberg <[email protected]>
To   [email protected]
Subject   st: Fixed effects dummies
Date   Sun, 11 Jul 2004 15:02:49 +0100

Dear Statalisters,

I have a rather basic questions about fixed effects models. I am estimating a fixed effects model, where my dependent variable is a trade specialisation index for four countries with respect to six other countries (basically I have countries 1, 2, 3, and 4 and I create an index for each of the countries in relation to countries 5 - 10). I then regress that index on a number of independent variables, one of them being investment flows from the six countries into each of the four countries.

When I run the regression with "xtreg, fe", Stata creates "too many" fixed effects, as it takes each country-by-country trade index as a fixed effect (thus I end up with 24 fixed effects dummies). I however want only four fixed effects, namely one dummy each for countries 1 to 4. Is it ok if I run the regression only with "reg" and add the four country dummies manually? When I did that the results seemed very reasonable, but I'm not sure if that's appropriate to do.

Your help would be very much appreciated.

Cordula


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