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st: Quadratic Interaction Term.
From
natasha agarwal <[email protected]>
To
[email protected]
Subject
st: Quadratic Interaction Term.
Date
Fri, 10 Sep 2010 21:56:11 +0100
Dear Statalist,
I am estimating an augmented Cobb-Douglas Production function using
the xtreg, fe command.
The estimating equation looks like
VA= f(L,K,FDI, GDP)
All transformed in logs.
I want to interact FDI*GDP and then introduce the quadratic term of
GDP with its interaction with FDI. So now the estimating equation
looks like
lnVA=lnK+Lnl+lnFDI+lnGDP+lnGDP^2+lnFDI*lnGDP+lnFDI*(lnGDP^2)
When I estimate this equation, I get the coefficient on the
lnFDI*(lnGDP^2) is insignificant but when I remove lnGDP^2 and
re-estimate the same lnFDI*(lnGDP^2) becomes significant. However, the
sign and magnitude does not change. The sign, magnitude and
significance does not change as well.
I checked for the joint signigicance of lnFDI lnGDP lnGDP^2
lnFDI*lnGDP lnFDI*(lnGDP^2) and it is significant.
Can anyone please explain me why is this happening?
Many thanks in advance
Natasha
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