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st: Multicollinearity in a fixed effects model

From   "Fitzgerald, James" <>
To   "" <>
Subject   st: Multicollinearity in a fixed effects model
Date   Wed, 8 Aug 2012 05:32:42 +0000

Hi All

I am running the following model in Stata 11.2:

xtreg y x1 x2 x3 yr*, fe cluster(firm)

I have an unbalanced dataset with 13,251 observations across 1,197 firms and over 1 to 20 years.

Stata does not drop any variables due to collinearity.
My question is, can I "ignore" the effects of multicollinearity given my sample size and the fact that no variables are dropped?
If not, and I have to investigate potential multicollinearity problems, how would I go about doing this? I read in a previous post that I could generate dummies to control for the fixed effects and then run -regress, vif-. However, given the large N and small T nature of my sample I'm not sure this would be appropriate.

Thanks in advance

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