In Example 13.8, we used the unemployment claims data from Papke (1994) to estimate the effect of
Question:
Log(uclmsu) = ai + cit + β1ezit + uit,
where a. and c. are both unobserved effects. This allows for more heterogeneity across cities.
(i) Show that, when the previous equation is first differenced, we obtain
Notice that the differenced equation contains a fixed effect, c.
(ii) Estimate the differenced equation by fixed effects. What is the estimate of β1 Is it very different from the estimate obtained in Example 13.8? Is the effect of enterprise zones still statistically significant?
(iii) Add a full set of year dummies to the estimation in part (ii). What happens to the estimate of β1.
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Related Book For
Introductory Econometrics A Modern Approach
ISBN: 978-0324660548
4th edition
Authors: Jeffrey M. Wooldridge
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