Re: Fixed Effects Model (LSDV) and Overfitting??

Posted by Molte on Jan 01, 2013; 5:54pm
URL: http://spssx-discussion.165.s1.nabble.com/Fixed-Effects-Model-LSDV-and-Overfitting-tp5717179p5717196.html

Rich:

During the time period 1977-1994, a corporate contribution ban was implemented in one state and lifted in four states. A total of 20 states had a ban in place throughout the time period and the remaining 22 states never had a ban in place. There is indeed a lot of fluctuation between the states in terms of the dependent variable (pollution abatement costs). The reason for these constant variations is what I aim to control for by employing state fixed effects. Just as you say, I suspect that it is the heterogeneity of these fixed effects is the reason for much of the high R2. Noteworthy that the state fixed effects have a combined F-value of 29,3 and is very significant.

As I wrote in the other reply, I absolutely believe that there’s a trend in the time series but that is what I hope to control for when I in a further analysis employ a lagged dependent variable. This gives me a total number of observations of 686 instead of 799, since the first year of the time series is dropped for each state. I do also control for time fixed effects but they seem to be very limited and not statistically significant.

Thanks so much for your help

A further question of mine regards the importance of interpreting the significance of my results. Since almost all US states are included in the study, can it be said to resemble a study of the total population and if so, doesn’t the importance of the p-value diminish since I’m not using a small sample from a larger universe of US states?