I have problems regarding analyzing dummy variable using fixed effects in Stata. I am doing research on impact of climate change in food grain production.
Much previous literature states that panel data use fixed effect regarding this types of analysis, as others I also follow the same things but I have to take soil variable as dummy due to certain reason. When I run xtreg with fixed effect all the dummy variables are dropped by Stata where remaining other values are given.
Do your dummy varibales vary over time or are they constant within each panel? In a fixed-effects model only time-varying variables can be used, the time invariant variables are droppped. This should be explained in your favourite (econometrics) textbook.
If you are interested in these invariant variables, you have two possibilities. If you think that the assumptions for a random effects model hold, you can go that way. In Stata, this kind of model is estimated by xtreg with the re option:
xtreg y x1 x2 x3, re
If you are not happy with the assumptions of the random effects model, you can also have a look at the Hausmann-Taylor estimator. In Stata, this estimator is implemented in the xthtaylor command.
xtlogit)
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