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st: Time varying fixed effects with xtreg


From   Estrella Gomez <estrellastata@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   st: Time varying fixed effects with xtreg
Date   Wed, 6 Jul 2011 16:38:38 +0200

Dear Statalisters

I am trying to estimate a gravity equation for trade that should
include time varying fixed effects. I have tried to include a set of
dummies for each exporter and year, and another set of dummies for
each importer and year. In order to do so, I have first created both
sets of dummies using these commands:

egen it=group (i t)
egen jt=group (j t)

where i is the exporter, j is the importer and t is time (yearly)

Hence, my regression should be like this:

xtreg trade $indepvars i.it i.jt, fe robust

The individual of the panel is pair of countries. Hence, the within
transformation should drop out all the time invariant country pair
specific fixed effects, and the set of dummies should control for all
the time varying country specific fixed effects.
However, since I have 80 countries and 40 year, Stata does not allow
me to run this regression.
Does anybody knows an alternative procedure?

Thank you very much,
Estrella
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