Academic

… If so, then maybe it’s time you tried FEVD, that’s right, FEVD - or “Panel Fixed Effects Regression with Vector Decomposition” (stata command is xtfevd). It’ll have your data up and feeling better in no time.

Well, ok, maybe not all that. Just be glad that I didn’t provide one of those “rapid fire at the end of the message statements” regarding the potential not so great side-effects of the treatment. In a recent issue of Political Analysis, there is a series of articles on the perils of TSCS data that suffer from sluggish (slow moving over time) or time-invariant variables. In what some may consider an unprecedented move in statistical methodology,Thomas Plumper (University of Essex) and his co-author, Vera Troeger, actually propose an understandable solution to the problem. Here’s the paper’s abstract:

Efficient Estimation of Time-Invariant and Rarely Changing Variables
in Finite Sample Panel Analyses with Unit Fixed Effects

Political Analysis Vol. 15:2, 124-139.

This paper suggests a three-stage procedure for the estimation of time-invariant and rarely changing variables in panel data models with unit effects. The first stage of the proposed estimator runs a fixed-effects model to obtain the unit effects, the second stage breaks down the unit effects into a part explained by the time-invariant and/or rarely changing variables and an error term, and the third stage re-estimates the first stage by pooled OLS (with or without autocorrelation correction and with or without panel-corrected SEs) including the time-invariant variables plus the error term of stage 2, which then accounts for the unexplained part of the unit effects. We use Monte Carlo simulations to compare the finite sample properties of our
estimator to the finite sample properties of competing estimators. In doing so, we demonstrate that our proposed technique provides the most reliable estimates under a wide variety of specifications common to real world data.

A version of the full paper can be found on SSRN here. You can download the STATA ado and help files for the procedure here. This could be a breakthrough on a problem which has long plagued state politics and comparative politics research - let’s hope that it’s not too good to be true.