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Re: st: Xtreg is dropping dummy variable for OECD countries.

From   "Clive Nicholas" <>
Subject   Re: st: Xtreg is dropping dummy variable for OECD countries.
Date   Tue, 15 Aug 2006 22:37:32 +0100 (BST)

Steffen H. Gröning wrote:

> When running a regression on my panel data for per capita growth, i
> would like to include a dummy variable for the OECD Countries. Once
> using a fixed effects model however, it is dropped.
> May be it is just too late to work, but could somebody point out why
> Stata does that?

Because in FE models such effects don't vary over time: they are constant,
and thus can't be estimated.

Try interacting your OECD dummies with what you would consider to be your
key variables. However, this is only a practical solution if:

(a) you're not using too many OECD dummies; and
(b) you've not got too many key variables with which to interact those OECD

You don't say whether you were successful in fitting a random-effects
model, where Cov(x_it,u_it)=0 and where theta=1, or near as dammit for all
practical purposes. If you've hit lucky on both these counts, why not fit
an RE model instead, which will allow you to include these dummies?

CLIVE NICHOLAS        |t: 0(044)7903 397793
Politics              |e:
Newcastle University  |

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