fixed effects: excluding one entity?

[Meimu Fen]

Dear all,

I am dealing with a panel data set with 31 provinces over 16 years examining the amount of development finance as logged Y variable and a set of X variables. I am using 12.1 version of stata and using both reg and xtreg to examine the effect (the reason I use reg only to justify a FE analysis, it is not center of my research).

The problem is: province number 31 does not receive development finance for 11 out of 16 years, thus the logged Y variable is 0 for those 11 years. My question is how to deal with this province in the fixed effects analysis, because it changed the significant variables to be insignificant in the results?

I have tried both: excluding the province and including the dummy: i.province31 in reg. But the dummy is being omitted in the xtreg. So I tried excluding the province and compared xtreg with and without the province 31, the R squared are the following:

with province31: R-sq: within = 0.0375
without province31: R-sq: within = 0.1105

The two codes I used are:

xtreg lnFINPP_PY2 GRPpc_L rSTBDGT_L TOPOP_L rFRBDGT_L EAST , cluster(province_id) fe

xtreg lnFINPP_PY2 GRPpc_L rSTBDGT_L TOPOP_L rFRBDGT_L EAST if(province_id < 31), cluster(province_id) fe

I will attach both outputs, I hope you can see it and it is readable. I am new to stata and thankful for any suggestions. Thankyou


Mei

[Carlo Lazzaro]

Meimu:
sorry, but contrasting the two output tables I cannot see the difference in statistical significance you complain about.
That said:
- I would not consider (pooled) OLS for this kind of task (unless, using default standard error, the F-test at the foot of -xtreg, fe- output table lacks statistical significance);
- i would report both the panel data regression results, explaining the difference (province_31 did not receive development finance for 11 out of 16 years). Obviously, it would be also interesting to explain the theoretical and empirical reasons why this happened.