Dear Experts,
I want to evaluate the effect of economic policy uncertainty on investment in various business sectors. I have an unbalanced panel of 1500 firms from 11 sectors for the 1990-2019 period. To conduct the analysis I perform regressions in each of the sectors. I would like to seek your help regarding the model specification.
Dependent variable: CAPEX/Total Assets
Main independent variable: economic policy uncertainty
Control variables: Firm-level control variables
Macroeconomic control variables
Considering the highly heterogeneous nature of the panel data I try to control for the investment opportunity and capacity, but still there might remain unobservable effects that vary across firms but are constant over time. Is it a valid approach to simply conduct a Hausman test to establish whether to estimate with RE or FE or maybe I should consider other aspects?
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