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> Not so. xtreg,fe is the least squares dummy variable model: OLS with  
> unit-specific dummies. If OLS is inappropriate for that model due to  
> endogeneity of one or more regressors, then taking care of the  
> unobserved heterogeneity does not make it consistent. Use xtivreg or  
> better yet xtivreg2 using an appropriate set of instruments. xtivreg2  
> has extensive diagnostics for the validity and strength of  
> instruments. It does not, however, deal with random effects models.  
> But if your xtreg,fe has endogeneity, there's no way that xtreg,re on  
> the same model would be appropriate either, as it assumes that the  
> unit-specific random terms are also independent of the idiosyncratic  
> error.
> 
> 
> Kit Baum, Boston College Economics
> http://ideas.repec.org/e/pba1.html
> An Introduction to Modern Econometrics Using Stata:
> http://www.stata-press.com/books/imeus.html
> 
> 
> On Feb 2, 2007, at 2:33 AM, Shams wrote:
> 
> > In this regard, my understanding is that Fixed Effect
> > (FE) estimation (with xtreg, fe) would control for
> > both unobserved and endogeneity in the regressors and
> > consistent and efficient for large T and if there is
> > sufficient within panel variation. Alternatively,
> > random effect (RE) estimation (xtreg, re) would only
> > control for random unobserved heterogeneity but not
> > the endogeneity issue.
> 
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