Hi all,

I am running a fixed effects model on a data set with 18 states from 1970 to 2018.
State wise agricultural GDP is my dependent variables and my independent variables include a dummy that takes the value of 1 if a heat wave occurred and zero otherwise. I also have irrigation as an independent regressor.
I want to see the efficiency of irrigation in reducing the adverse effects of heat waves on agricultural GDP so I run the following model.

AGRI_GDP= B0+ B1*HEAT_WAVE + B2*IRRIGATION + B12*HEAT_WAVE*IRRIGATION+ B3*OTHER_CONTROLS+e
I see some research papers (for example Dell, M., Jones, B.F. and Olken, B.A., 2012. Temperature Shocks and Economic Growth: Evidence from the Last Half Century. American Economic Journal: Macroeconomics, 4(3), 66-95 https://scholar.harvard.edu/files/de...emperature.pdf) do not include the base dummy term (B1*HEAT_WAVE in my case) when running similar models, and instead only include the base term of the continuous variable (IRRIGATION in my case) and the interaction between the continuous and dummy variable (HEAT_WAVE*IRRIGATION)

Which of the two approaches would be correct if the objective was to see the efficiency of irrigation in reducing the adverse effects of heat waves on agricultural GDP?


Thank you for your time.