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From |
"Jacobs, David" <jacobs.184@sociology.osu.edu> |

To |
"'statalist@hsphsun2.harvard.edu'" <statalist@hsphsun2.harvard.edu> |

Subject |
st: RE: Drop in R-squared when adding variables in xtreg |

Date |
Mon, 22 Apr 2013 17:15:40 +0000 |

The R Squared that matters in a fixed effects analysis is the within one. Are you telling us about another? Dave Jacobs -----Original Message----- From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Gaetano Dadamo Sent: Monday, April 22, 2013 3:51 AM To: statalist@hsphsun2.harvard.edu Subject: st: Drop in R-squared when adding variables in xtreg Dear statalisters, I’ve been performing a FE regression with Stata and I have puzzling results: for example, I run the model xtreg y y1 x year_dummies, fe cluster(country) where y1 is the first lag of y, and get an overall R-squared of 0.71. Then, I want to see the effect of institutional variable z on the coefficient of y1 and z, so I run the regression xtreg y y1 x z*y1 z*x year_dummies, fe cluster(country) but my overall R-squared falls to 0.21. I have the same number of observation in both samples. It is the between R-squared that falls a lot. Why is that? Shouldn’t the explicative power of the regression not fall when adding variables anyways? I have that results with two different institutional variables: one is Union Density which is quite variable across and within units, so it definitely cannot be a problem of multicollinearity; the other one is a dummy for New Member States of EU which is constant within countries (but, since it is interacted, does not drop out of the system). Here R-squared falls from 0.71 to 0.06. Is there a problem with the estimation? More generally: is the (overall) R-squared the best way for looking at the goodness of fit here? Thank you so much. Gaetano * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/faqs/resources/statalist-faq/ * http://www.ats.ucla.edu/stat/stata/ * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/faqs/resources/statalist-faq/ * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**Re: st: RE: Drop in R-squared when adding variables in xtreg***From:*"Gaetano Dadamo" <gaetano.dadamo@uv.es>

**References**:**st: Drop in R-squared when adding variables in xtreg***From:*"Gaetano Dadamo" <gaetano.dadamo@uv.es>

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