Hi,

I've run a country FE model and found that the coefficients previously found signficant in the pooled model are robust as long as the lagged dependent variable is included.  I'm using a lagged dv because the dv is expenditure data and it seems that the previous year level of expenditure belongs in the model, plus (following Beck and Katz's and other's advice) it helps address the serialcorrelation problem.
I know LDV may cause problems in FE models so I have run the FE model with the LDV and without it.  As I said, the estimates are not robust to dropping the LDV in the FE model...So, what shall I conclude?  Is it that the LDV really biases my FE estimates or is it that for some reason it belongs in the model and dropping it causes omitted variable bias?

Thank you for your help.

Carola





      

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