PPML Fixed Effects

[Daniel Gomez]

Hi,

In a Gravity Model estimation with PPML,
which is the difference between these two options if I want to include fixed effects on my model? Are both correct?

Option 1:

egen exp = group(exporter)
quietly tabulate exp, gen(EXPORTER_FE)

egen imp = group(importer)
quietly tabulate imp, gen(IMPORTER_FE)

egen time = group(year)
quietly tabulate imp, gen(YEAR_FE)

Option 2:

egen exp_time = group(exporter year)
quietly tabulate exp_time, gen(EXPORTER_TIME_FE)

egen imp_time = group(importer year)
quietly tabulate imp_time, gen(IMPORTER_TIME_FE)


Thanks,

Daniel

[Joao Santos Silva]

Dear Daniel Gomez,

I am not an expert in this but I believe that the fist option created imp, exp, and time FE, while the second created imp and exp fixed effects for each time period; this is generally preferred.

Best wishes,

Joao

[Daniel Gomez]

Thank you Joao!