I have a following question: I want to estimate the impact of increased use of computers by employees on their employment. I have panel data for 11 industries and 11 time periods. As Hausman test suggested I have a correlation between error terms and my regressor, therefore I am using a fixed effects model.
That is:
xtset industry time
xtreg employment computer_use c.using_computer#i.industry degree, fe
However, I thought that actually computer_use (% of employees using a computer) could be endogenous in the sense that the price of the computer could be a good instrument for that.
I have searched in a variety of articles but cannot find an answer to my (potentially stupid) question: if I am using a fixed effect model, does it exclude the option of instrumental variables? Isn't fixed effects already controlling for endogeneity and I should not worry about IV ?
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