Hi,

I have a question related to using dummy variable in fixed effects model. The data set I used includes 10 companies in 15 years. I intend to examine the difference between two groups of companies in terms of the relationship between profitability and service quality, therefore, I want to interact a dummy variable with an independent variable to see the difference. However, in my understanding, the time-invariant dummy variable will be automatically dropped out during regression, how can I solve this problem?

The model I set up is shown as below:
Rit = β1Qit-1 + β2(Di*Qit-1) + εit

Thanks in advance! Looking forward to your reply!

Best regards,
Crystal