Dear All,
I wish to estimate the following panel data model using xtreg, fe
yit = xitβ + γDi + uit
where D is a time-invariant dummy variable. Estimating the above model following fixed effects method it is not possible to estimate the coefficient γ because due to the fixed-effects transformation, the effect of any time-invariant variable cannot be separated from the fixed-effects.
Running the model bellow using regress , namely using OLS of the modified x on modified y, what would be the interpretation of the coefficient δ about the relation between y and D?
(yit-ȳ*i)= (xit –x̄*i) β + δDi + (uit*-ūi)
where ȳ*I,x̄i*, ūI are the average values of y,x and u over time.
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