I'm running some regression models with panel data from Brazilian municipalities (N = 64,708, Number of groups = 5,561, T = 3).

The results seem ok at first, but:

1. The overall R2 is almost null: 0.0008

2. rho = .9917

3. corr(u_i, Xb) = -0.9928


What do these pieces of information suggest about the convenience of running FE models versus running pooled OLS?