Re: [Gretl-users] fixed effects panel estimation

On Fri, 17 Jul 2009, Iveta Paterova wrote: > thank you for your answer. The problem is that every literature > recommeds fixed effect model as a correct estimator. It is a > gravity equalition, therefore some county-specific variables > remain and do not chage over the time. You cannot include regressors that are time-invariant in a fixed effects specification.  Mathematical fact of nature, doesn't matter what software you are using.  Please see the discussion in Chapter 15, "Panel Data", in the Gretl User's Guide. The fixed effects model sweeps out between-group variation in either of two ways: by including dummy variables specific to each of the groups, or by subtracting the group means from the regressors. On the dummy variables approach, a time-invariant variable (for example, something basically geographic) will (inherently) be perfectly collinear with the group dummies, it's just another group-specific constant.  On the approach of subtracting the group means, such variables will collapse to nothing but zeros, since every observation has value equal to the relevant group mean, If anyone told you the fixed effects specification would work with such variables, they were misinformed. Allin Cottrell _______________________________________________ Gretl-users mailing list Gretl-users(a)lists.wfu.edu http://lists.wfu.edu/mailman/listinfo/gretl-users