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Re: st: Two-Way Fixed Effect Estimation


From   Maarten buis <maartenbuis@yahoo.co.uk>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Two-Way Fixed Effect Estimation
Date   Wed, 13 Aug 2008 07:23:10 +0100 (BST)

--- Asgar Khademvatani <akhademv@ucalgary.ca> wrote:
> I am using STATA 9.1. I would like to run a  two-way fixed effect(FE)
> model using a panel data set constructed from 4 sectors and 43 years,
> 1958 to 2000. I already know Stata lacks a command to automatically
> fit two-way fixed effect model. But, I know that if the number of 
> periods is reasonably small, we can fit a tow-way FE model by
> creating a set of time indicator variables and including all but one
> in the regression.
> 
> Since, the number of time periods in my case is large , 43 years vs.
> 4 industrial sector, then if I follow this method , then I will lose 
> degree of freedom and so following such method  can not be correct. 

The obvious alternative is to let -xtreg- take care of the periods and
add dummies for the industrial sectors. There is nothing magical about
time that forces you to add that as a set of indicator variables. It is
usually done that way because it is usually the factor with the
smallest number of values (think of persons observed over time, you
usually have many more persons than time periods).

hope this helps,
Maarten

Ps. you can update free of charge to Stata 9.2 by typing in Stata 
-update all-

-----------------------------------------
Maarten L. Buis
Department of Social Research Methodology
Vrije Universiteit Amsterdam
Boelelaan 1081
1081 HV Amsterdam
The Netherlands

visiting address:
Buitenveldertselaan 3 (Metropolitan), room Z434

+31 20 5986715

http://home.fsw.vu.nl/m.buis/
-----------------------------------------

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