st: Error in Stata? xtdpdsys assigns explanatory power to fixed effects

[LaraKrugman <larasusannakrugman@gmail.com>]

Hi everyone!
I'm estimating a dynamic panel model using the xtdpdsys command in Stata 11.
The problem I find is that if you include a dummy for a panel variable
(country, factory, individual) xtdpdsys assigns explanatory power to this
dummy.
According to the idea of the estimator it should obviously not do this as
observation entity specific fixed effects are an integral part of the
estimator - and they should absorb the effect, thereby making an additional
dummy superfluous and perfectly collinear to the fixed effect. To make this
point clear I have this example using Stata data:

use http://www.stata-press.com/data/r11/abdata
xtset id year
gen seven=0
replace seven=1 if id==7
xtabond n L(0/2).(w k) yr1980-yr1984 year seven, vce(robust)
xtdpdsys n L(0/2).(w k) yr1980-yr1984 year seven, vce(robust)


xtabond is doing what it should do and omits the entity specific 'seven'
xtdpdsys estimates some coefficient it shouldn't.

Is this already a known problem? Or do I misunderstand something?

(My application is a model in which I have dummies for country groups (a b
c). These dummies are interacted with a variable x.
The problem I find is that if I estimate a subsample for which a==1. I find
that a*x has a negative coefficient. But if I estimate the whole sample the
coefficient of a*x is (falsely) positive.)

Cheers Lara

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