Re: st: Can I control for time invariant industry effects and time invariant country effects at the same time?

[Federico Belotti <f.belotti@gmail.com>]

I'm wondering if the country effects may be identified in this case. It seems to me that by controlling for the industry effects also the country effects will be ruled out, being industries clustered within countries. When industries do not move between countries there will be no variation to disentangle these effects. See 

Abowd, J., F. Kramarz, and D. Margolis. 1999. High Wage Workers and High Wage Firms.
Econometrica 67: 251{333.

for the case of firms/employees.

Federico 

Il giorno 24/ago/2013, alle ore 05:56, David Hoaglin <dchoaglin@gmail.com> ha scritto:

> Chris,
> 
> The usual approach would use indicator (or dummy) variables for the
> countries and the industries.  You can set up those categorical
> variables as factor variables in Stata.  (You didn't mention the
> numbers of countries and industries, or whether you may need to
> include interactions between country and industry.)
> 
> If the joint distribution of countries and industries is reasonably
> balanced in your data, those variables should not cause problems with
> collinearity.  If they were perfectly balanced, your model would
> resemble a two-way analysis of covariance.
> 
> Similarly, if the Xct have nontrivial variation across countries and
> across time, they should not have collinearity relations with the
> country indicators or the time indicators.  Collinearity among the X's
> may be a possibility.
> 
> In any event, the various coefficients should be straightforward to
> interpret.  The country effects are adjusted for the contributions of
> time and the X's, the time effects are adjusted for the contributions
> of countries and the X's, and the coefficients of the X's are adjusted
> for the contributions of countries and time.  The fixed effects will
> be relative to (i.e., differences from) the reference country and the
> reference year.
> 
> David Hoaglin
> 
> On Fri, Aug 23, 2013 at 7:42 PM, Christopher Parker
> <christopher.parker101@gmail.com> wrote:
>> Dear Statalists,
>> 
>> I want to do a regression of the following form:
>> 
>> Ycit= Ac + Bi +Xct
>> 
>> Ycit is my dependent variable, that varies across countries c.,
>> industries i, and time t. Ac is a country effect, Bi an industry
>> effect and Xct are my explanatory variables that vary across countries
>> and time. I want to estimate this with a  normal OLS estimator by
>> using dummies.(LSDV approach). To restate, I want include
>> timeinvariant industry and country dummies in an OLS-regression. Will
>> I have any collinearity issues with this approach, and will the
>> coeffecients for the fixed effects be interpretable?
>> 
>> I would be very thankful for your help!
>> 
>> Chris
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