Joana,
Date sent: Tue, 26 Jul 2005 13:56:55 +0100
From: Joana Quina <[email protected]>
To: [email protected]
Subject: st: Fixed Effects estimation with time-invariant variables
Send reply to: [email protected]
> Fixed Effects estimation with time-invariant variables
>
> I have a problem and I wonder whether anyone can help. I have a panel
> dataset of 32 Sub-Saharan African countries and four time periods
> (N=32, T=4). I am looking at the determinants of aid for these
> countries. Given that they are not randomly selected countries, I am
> using Fixed Effects. However, I have a few time-invariant variables
> that are important but that get dropped because of using FE. Is there
> any way of obtaining estimates for these time-invariant variables and
> still use FE?
No. The fixed effects are perfectly collinear with the time-
invariant variables. There's nothing you can do about this if you
want to use fixed effects.
> Also, given the data I'm using, is there any
> justification for using Random Effects?
It's not obviously wrong to try random effects, especially as you can
use a Hausman test to check whether random effects can be accepted.
The fact that the time-invariant variables aren't included in the FE
estimation doesn't prevent you from using the test.
Hope this helps.
Cheers,
Mark
> Any comments would be much appreciated.
>
> Thanks.
> Joana
>
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Prof. Mark E. Schaffer
Director
Centre for Economic Reform and Transformation
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS UK
44-131-451-3494 direct
44-131-451-3296 fax
44-131-451-3485 CERT administrator
http://www.sml.hw.ac.uk/cert
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