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I heard that the F-test is to advice you whether to use fixed effects or pooled OLS. However, I didn't find any details about it in books. Only in a very few studies. What is the hypothesis of the test? After I run my fixed model I got

F test that all u_i=0:     F(100, 389) =     2.98            
Prob > F = 0.0000

As I understand u_i=0 means I shall use fixed effect (am I right?), in general how accurate is this F-test compared to the Hausman test and LM test given the fact that we will end to knowing whether to use fixed effects or pooled OLS?

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The null hypothesis of the F-test following xtreg, fe is that in your model $$y_{it} = X'_{it}\beta + u_i + e_{it}$$ the observed and unobserved fixed effects $u_i$ are equal to zero, i.e. they are equal across all units. Rejecting this hypothesis means that the fixed effects are non-zero. Something similar is tested when you apply the LM-test by Breusch and Pagan after the random effects regression where the null hypothesis is that $\text{Var}(u_i) = 0$.

In your case, a significant F-test means that the fixed effects are non-zero and therefore pooled OLS and random effects will be biased if $\text{Cov}(X_{it},u_i)\neq 0$. The latter condition is something that the F-test does not tell you. For this purpose you need the Hausman test because it might be that the fixed effects are non-zero but that they are yet uncorrelated with your time-varying explanatory variables, though this is a rare case in practice as far as I know.

If you apply all tests you should typically arrive at similar conclusions. Here is a reproducible example to see it for yourself:

webuse nlswork.dta
xtset idcode year

// Fixed effects regression
xtreg ln_wage age hours i.year, fe
est store fe

// Pooled OLS regression
reg ln_wage age hours i.year
est store pols

// Hausman test comparing FE and pooled OLS
hausman fe pols, sigmamore

// Random effects regression with LM test
xtreg ln_wage age hours i.year, re
est store re
xttest0

// Hausman test comparing FE and RE
hausman fe re, sigmamore

You should find that the F-test rejects equal fixed effects across units, the LM test rejects a zero variance of the fixed effects, and that the Hausman test prefers the fixed effects regression to both pooled OLS and the random effects regression.

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  • $\begingroup$ you said the fixed effects not zero ... are you talking about F(100, 389) = 2.98 ? thank u $\endgroup$
    – Ben
    Commented Jun 25, 2014 at 17:48
  • $\begingroup$ Exactly. That F-test tests whether the fixed effects are zero. Rejecting this hypothesis means that they are not zero. $\endgroup$
    – Andy
    Commented Jun 25, 2014 at 18:31

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