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st: Multicollinearity


From   Cordula Stolberg <cs32@sussex.ac.uk>
To   statalist@hsphsun2.harvard.edu
Subject   st: Multicollinearity
Date   Fri, 06 Aug 2004 15:36:06 +0100

Dear Statalisters,

I have a question related to multicollinearity. I run the following regression:

xi: ivreg2 lfrag lfdi (lspec = lexp liit76 liit54) i.dapp_cz i.dapp i.dapp_slvk i.dag i.dneg i.dneg_slvk i.dgo i.dcz i.dhun i.dslvk

The problem is that Stata -no matter whether I use -ivreg2-, -reg-, or -xtreg- includes the variable "i.dneg_slvk" always twice and then drops it to avoid multicollinearity (see below):

Instrumental variables (2SLS) regression
----------------------------------------

Number of obs = 40
F( 12, 26) = 2.43
Prob > F = 0.0270
Total (centered) SS = 335.3994166 Centered R2 = 0.3195
Total (uncentered) SS = 3741.564996 Uncentered R2 = 0.9390
Residual SS = 228.2362191 Root MSE = 2.4

---------------------------------------------------------------------------
---
lfrag | Coef. Std. Err. z P>|z| [95% Conf.

-------------+-------------------------------------------------------------
---
lspec | -3.313096 5.880005 -0.56 0.573 -14.83769
lfdi | 64407.86 37018.25 1.74 0.082 -8146.577
_Idapp_cz_1 | -6.691789 3.708458 -1.80 0.071 -13.96023
_Idappa1 | -7.56607 3.602525 -2.10 0.036 -14.62689
_Idapp_slv~1 | -7.471712 3.489523 -2.14 0.032 -14.31105
_Idag_1 | -4.624783 2.560676 -1.81 0.071 -9.643615
_Idneg_1 | -3.974766 2.381558 -1.67 0.095 -8.642534
_Idneg_slv~1 | -2.901205 2.515054 -1.15 0.249 -7.83062
_Idneg_slv~1 | (dropped)
_Idgo_1 | -3.072955 2.099523 -1.46 0.143 -7.187944
_Idcz_1 | 3.790734 5.606013 0.68 0.499 -7.196849 1
_Idhun_1 | -.9256889 2.651573 -0.35 0.727 -6.122677
_Idslvk_1 | 7.115247 8.029922 0.89 0.376 -8.62311
_cons | -246131.1 141481.5 -1.74 0.082 -523429.9 3
---------------------------------------------------------------------------
---
Sargan statistic (overidentification test of all instruments): 1.655
Chi-sq(1) P-val = 0.19830
---------------------------------------------------------------------------
---
Collinearities detected among instruments: 2 instrument(s) dropped
Instrumented: lspec
Instruments: lfdi _Idapp_cz_1 _Idappa1 _Idapp_slvk_1 _Idag_1 _Idneg_1
_Idneg_slvk_1 _Idneg_slvk_1 _Idgo_1 _Idcz_1 _Idhun_1 _Idslvk_1
lexp liit76 liit54
---------------------------------------------------------------------------
---


Does anyone know why Stata does this and how I can avoid it? Any suggestions would be much appreciated.

Thanks,
Cordula







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