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# Re: st: Fixed Effect Estimation Results

 From Rafal Raciborski To statalist@hsphsun2.harvard.edu Subject Re: st: Fixed Effect Estimation Results Date Mon, 13 Mar 2006 16:37:01 -0500

consider a model

y[i,t] = X[i,t]*b + u[i] + v[i,t]

where u[i] are individual effects constant over time (note there is not t subscript), and v[i,t] is the "traditional" error term.

in a fixed effect model, the time-invariant u[i] are assumed to be correlated with X[i,t]. e.g. in evaluating firm performance, it is, as a rule, impossible to measure managerial skills or organizational culture so these unobservable effects will be correlated with the regressors. stata reports this correlation as corr(u_i, Xb).

rafal

Quoting "Sam Rawlings, Social Sciences and Law 03" <sr3209@bristol.ac.uk>:

Hi There,

I am an undergraduate student in my final year and I am quite new to Stata, and indeed, to a lot of the techniques and models that can be used in Stata. So my apologies if this question may seem quite simple but I can't seem to find an explanation anywhere.

I have estimated (several) sub-samples for a fixed effects model using panel data. However, in order to interpret my results, I'm slightly confused about one of the statistics given - corr(u_i, Xb). Is there any chance anyone could enlighten me, as I can only guess what it means and would rather know for sure when writing up my results. I've included one of my regression results below for reference to what I'm asking about. Any comments would be appreciated!

Samantha

Fixed-effects (within) regression Number of obs = 560
Group variable (i): country Number of groups = 112

R-sq: within = 0.6385 Obs per group: min = 5
between = 0.9909 avg = 5.0
overall = 0.9694 max = 5

F(3,445) = 62.01
corr(u_i, Xb) = 0.9249 Prob > F = 0.0000

---------------------------------------------------------------------------
---
lngdpwaa | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+-------------------------------------------------------------
---
laglngdpwaa | .6389257 .0263356 24.26 0.000 .5871681 .6906832
lns | .1294206 .0248952 5.20 0.000 .0804939 .1783473
lnngdelta | -.0818537 .0922956 -0.89 0.376 -.2632431 .0995357
_cons | 3.080864 .3074474 10.02 0.000 2.476635 3.685093
-------------+-------------------------------------------------------------
---
sigma_u | .29921031
sigma_e | .13863343
rho | .82326502 (fraction of variance due to u_i)
---------------------------------------------------------------------------
---
F test that all u_i=0: F(111, 445) = 2.78 Prob > F = 0.0000

----------------------
SB Rawlings, Social Sciences and Law 03
sr3209@bristol.ac.uk
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```

================
Rafal Raciborski
Graduate student
Department of Political Science
Emory University
301 Tarbutton Hall
1555 Dickey Drive Atlanta, GA 30322
404-378-9826 (home)
rafal.raciborski@emory.edu
http://www.roofoos.net/

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