Region fixed effects in cross-sections

[Nikos Korompos]

Dear All,

I would like to include some region fixed effects in a model based on a cross-sectional survey. What is the process for this?

Is it ok if I include dummies for the regions ? Similarly, is it fine if I include year dummies in order to capture the year fixed effects.

Thank you.

Nikos

[Clyde Schechter]

The answer to this question depends on aspects of your data that you have not described. What is the sampling design underlying your data collection? What kind of dependent variables do you have (dichotomous, polytomous, ordinal, continuous?) and what analyses do you want to carry out?

[Nikos Korompos]

Dear Clyde,

thank you for your answer. The dependent variable is continuous, and I will possibly work with a GLM model. The datasets is based on a household survey.

[Clyde Schechter]

is it fine if I include year dummies in order to capture the year fixed effects.

In most situations, yes.

As for specifying regional fixed effects, if your GLM is one of those covered by an -xt- command, one approach is to -xtset region- and then use the corresponding -xtreg, fe- or whatever other -xt- regression you want to apply. However, without knowing more about the structure of your data, I can't assure you that this approach is correct. If there is no nesting of observations at any layer lower than region, then this is fine. But if there is also, say, household, or village nesting, then -xtset region- falsely tells Stata that observations are independent within region and your standard errors, and everything based on them, will be incorrect. If your data are, say, nested within households which are, in turn, nested within regions, then you need to -xtset household-. You will then not need to incorporate region fixed effects because region is constant within household and any time-invariant region effects will be taken care of by the household fixed effect. (You will also be unable to incorporate region fixed effects in this context.) If, however, estimating region-specific effects is a goal of the research, then this approach would evidently be unsatisfactory. In that case, I think you need to abandon fixed-effects and go to multi-level modeling, or perhaps look at -xtset region- with -xtreg, be-.