Thank you Mark. I was told that Hausman and Taylor have an
Econometrica paper where they tackle the problem of time-invariant
variables and fixed-effects. Are you familiar with this?
Regarding whether it is acceptable to use random effects, my
supervisor has a strong view that in this case it would be wrong.
Could you tell me why you say it is not obviously wrong to do so?
Thank you again,
Joana
On 26/07/05, Mark Schaffer <[email protected]> wrote:
> 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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>
*
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