# Panel Data, Fixed Effects regression

I have a question about the fixed effects model.

I have 25 manufacturing sectors for a 12 year period (balanced panel data set) and I try to find out the effect of each sector's investment expenditure on the ratio of skilled/ unskilled workers for each sector, so my regression model is:

S/U= f(real investment expenditure)

among other things. Because I'm interested in capturing the effect of investment on S/U for different sectors individually, I created dummy variables for each sector and interacted them with investment expenditures of each sector. When I run that regression with fixed effects, investment appears to be a significant factor for determining skill ratio only for 2 sectors. However, when I run the regression with fe, vce (robust), the relationship seems significant for almost all sectors.

I'm wondering how this is possible.

• It’s not clear to me exactly what you’re doing in the two cases you’re comparing. Mar 16, 2019 at 3:25

Regarding your question and the Stata FAQ quoted above, note that when you use vce(robust) in [xtreg, fe], Stata interprets this as [xtreg, fe vce(cluster)].
$$\log\left(\frac{S}{U}\right)\sim 1+ \text{investment} + (1+\text{investment} | \text{sector}),$$