Dummy variables in panel data

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farrokhka1953
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Joined: Sat Nov 03, 2012 11:04 pm

Dummy variables in panel data

Postby farrokhka1953 » Sat Nov 03, 2012 11:32 pm

I am using panel data of some 60 countries over a 30 year period. One of my regressors is the size of the economy of a country which I divide into high and low income groups. I created a series for "size" where high income countries get a value of one and low income ones get a value of zero. The file is attached. When I try to estimate Eviews returns the message "near singular matrix" and won't estimate it. Can you help please?
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Dummy Variables.xlsx
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EViews Gareth
Fe ddaethom, fe welon, fe amcangyfrifon
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Joined: Tue Sep 16, 2008 5:38 pm

Re: Dummy variables in panel data

Postby EViews Gareth » Sun Nov 04, 2012 1:59 pm

You've probably hit the dummy variable trap.
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Paneldatadummies
Posts: 3
Joined: Tue Oct 30, 2012 2:51 pm

Re: Dummy variables in panel data

Postby Paneldatadummies » Mon Nov 05, 2012 5:57 am

May I know if there any diagnostic test in panel data that need to apply after estimation so tat the result is robust?
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farrokhka1953
Posts: 2
Joined: Sat Nov 03, 2012 11:04 pm

Re: Dummy variables in panel data

Postby farrokhka1953 » Mon Nov 12, 2012 1:56 am

Hi Gareth:

So what should I do to avoid the trap?
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