I have a large panel data set of global trade flows and I would like to create a model for forecasting between two specific country pairs. I am just having trouble figuring out how to go about it in Stata using fixed effects and yet still accounting for the individual effects.
I found this research paper and would essentially like to recreate the process explained on p.299: http://ageconsearch.umn.edu/bitstream/43996/2/martinez.pdf
A problem we faced with FEM is that we cannot directly estimate variables that do not change over time because the inherent transformation wipes out such variables. However, these variables can be easily estimated in a second step, running another regression with the individual effects as the dependent variable and distance and dummies as explanatory variables
I can easily estimate
xtreg with trade volume regressed on gdp/gdp per capita, but what are the steps I then take to estimate the individual effects (dist, island, etc) in Stata?
Note: I assume they are using FE OLS, but because my data contains many 0 trade flows, is it possible to apply this method to an