Hi all, I am trying to do the analysis on studying diversity index influencing farmer's productivity.

I have two wave(2 years gap) and 202 balanced samples(total 404) for each wave.

Since I thought diversity index has endogeneity problem, I used IV for the analysis.

Now, i have problem whether to choose random or fixed effect in my situation..

If I run with FE which consumes a lot of obs(202) in my case, coefficients are against our common sense and few of them are significant...

but random effect? results are acceptable and significant....(also same when estimated with pooled OLS)


However, if I run Hausman Test, the results are saying that fe is more suitable...


xtset hhid year, yearly
xtivreg ln_yield_val_ ///
/*socio-economi*/ hhhead* education minority ///
/*agricultural input as value*/ ln_labor4total ln_irri4total ln_cheftz4total ln_orgftz4total ///
/*agricultural input as quantity(kg)*/ culareaT ///
/*risk*/ creditcard ///
/*aid*/ t1_aid_mach ///
/*weather variability*/ m_dro3_10_ky pr_CoV_ky ///
/*diversity*/ (diversity_s = diversity6 SRF LRCoVmean_5), fe (or re)

estimate store fe
estimate store re
hausman fe re, sigmamore


My question is,

1) Is my approach reasonable? running xtivreg and hausman test to check which is more suitable?

2) Do I need to stick to the fe, even though results are against the theory?

3) Any other suggestions or insights on this analysis?


Kindly give me some advice.

Many Thanks,

Manny