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Re: st: Fixed Effects estimation with time-invariant variables


From   "Mark Schaffer" <[email protected]>
To   [email protected]
Subject   Re: st: Fixed Effects estimation with time-invariant variables
Date   Tue, 26 Jul 2005 14:18:49 +0100

Joana,

Date sent:      	Tue, 26 Jul 2005 13:56:55 +0100
From:           	Joana Quina <[email protected]>
To:             	[email protected]
Subject:        	st: Fixed Effects estimation with time-invariant variables
Send reply to:  	[email protected]

> Fixed Effects estimation with time-invariant variables
> 
> I have a problem and I wonder whether anyone can help. I have a panel
> dataset of 32 Sub-Saharan African countries and four time periods
> (N=32, T=4). I am looking at the determinants of aid for these
> countries. Given that they are not randomly selected countries, I am
> using Fixed Effects. However, I have a few time-invariant variables
> that are important but that get dropped because of using FE.  Is there
> any way of obtaining estimates for these time-invariant variables and
> still use FE?

No.  The fixed effects are perfectly collinear with the time-
invariant variables.  There's nothing you can do about this if you 
want to use fixed effects.

> Also, given the data I'm using, is there any
> justification for using Random Effects?

It's not obviously wrong to try random effects, especially as you can 
use a Hausman test to check whether random effects can be accepted.  
The fact that the time-invariant variables aren't included in the FE 
estimation doesn't prevent you from using the test.

Hope this helps.

Cheers,
Mark

> Any comments would be much appreciated.
> 
> Thanks.
> Joana
> 
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Prof. Mark E. Schaffer
Director
Centre for Economic Reform and Transformation
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS  UK
44-131-451-3494 direct
44-131-451-3296 fax
44-131-451-3485 CERT administrator
http://www.sml.hw.ac.uk/cert

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