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st: "Crude" Random Effects Estimates

From   "Dean DeRosa" <>
To   <>
Subject   st: "Crude" Random Effects Estimates
Date   Thu, 25 May 2006 10:44:52 -0400

I am estimating the parameters of a gravity trade model, using a large panel
data set of international trade flows and explanatory variables. A number of
the explanatory variables are time-invariant, so I am mainly interested in
obtaining random effects (within cum between) estimates. I am experimenting
with Hausman-Taylor (HT) estimates using -xthtaylor- but so far find these
estimates difficult to evaluate given that different combinations of
endogenous (versus instrumental) variables lead to a variety of coefficient
estimates for the time-varying explanatory variables, with no decisive, or
best, outcome in terms of the Hausman test of the difference between the HT
and within estimates.

My query is whether it is tenable to run the random effects regression
command -xtreg, re- constraining the coefficient estimates for the
time-varying explanatory variables to be equal to "first-stage" fixed
effects (within) estimates. Per force, this would seem to eliminate possible
correlation between the time-varying expanatory variables and the
unobservable specific effect variable, and to obviate the necessity of
evaluating the random effects estimates using the -hausman- test. But, would
it still leave the "second stage" random effects estimates subject to
possible correlation between the time-invariant explanatory variables and
the unobservable specific effect variable? Also, is there any precedent in
the panel data literature for pursuing such a crude approach to obtaining
random effects estimates?

Dean DeRosa

Dean A. DeRosa
200 Park Avenue, Suite 306
Falls Church, Virginia 22046 USA
Tel: 703 532-8510 | Skype V-Tel: ADRintl | |

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