Dear statalist,
I am using a fixed-effects panel data regression model on a balanced panel
of 110 firms observed for 12 years, all are in the same country. The
dependent variable is an insolvency predictor for the respective firm in the
respective year, the independent variables are a time dummy, to evaluate the
effect of enactment of a certain law, and other controlling variables
unrelated to the time period.
As one of the controlling variables, I believe that the general economic
situation in that country, as expressed by the GDP growth rate, has an
influence on the insolvency predictor, i.e. the dependent variable, and
therefore include a variable containing the growth rate for the 12 years
under observation. Since all firms are situated in the same country, these
12 values for GDP growth rate are of course the same for all 110 firms. I
include the GDP variable to control for influence outside the law effect
that I am researching on using the time dummy and am not particularly
interested in its coefficient.
My question: Is it sensible to include the GDP growth rate variable (which
turns out to be significant in the regression model), or is this merely a
year dummy, since it is the same for all firms? Should it therefore be left
out?
Thank you very much for your comments on this question!
Regards,
J Andr�
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