Hello!
I am conducting research into the determinants of FDI using panel data. From previous studies I have seen fixed effects is generally preferred when performing this research.
I have a panel of 16 countries and 22 years and have performed unit root tests on each variable to ensure they are stationary. After that I performed tests for heteroscedasticity and autocorrelation, and concluded autocorrelation and heteroscedasticity are present in the data. Is there any additional diagnostic tests to perform on the data before using the 'xtoverid' function to test whether to use RE or FE? (I've read in previous posts that Hausman test is invalid when autocorrelation and heteroscedastity is present).
After running
xtreg "depvar" "varlist", re vce(cluster country)
xtoverid
The p value returned is <0.05, which suggests that FE should be used.
Given my panel dynamics is the function 'xtgls' or 'xtreg,fe' to be used?
e.g
xtreg "depvar" "varlist", fe vce(cluster country)
or
xtgls "depvar" "varlist", panels(hetero) corr(ar1) force.
Many thanks if anyone can help!
Sam
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