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st: a simple panel data question: FE and RE

From   "yjh jsh" <>
Subject   st: a simple panel data question: FE and RE
Date   Fri, 1 Aug 2008 17:36:02 -0400

Dear all,
I have a newbie question here. sorry for this.

I have a panel data with variable Y and X for two units for example.
unit  year   X    Y
1     1991  1     20
1     1992  2    19
1     1993  3     21
2     1991 10    40
2     1992 11    40
2     1993 11    39

That is, there is a larger cross variation than within variation

As i understand, FE only address the variation within units. So, if I
use FE, i will not find a significant relationship between x and y
based on the nature of the hypothectical data.
but this finding does not take into account the fact Y takes higher
vaue in unit 2 because x takes higher value in that unit. That is, fe
failed to represent the across-variation.

Is my understanding correct?

Sorry for this simple question.

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