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I have a simple issue after running a regression with panel data using plm with a dataset that resembles the one below:

dataset <- data.frame(id = rep(c(1,2,3,4,5), 2),
                      time = rep(c(0,1), each = 5),
                      group = rep(c(0,1,0,0,1), 2),
                      Y = runif(10,0,1))
model <-plm(Y ~ time*group, method = 'fd', effect = 'twoways', data = dataset,
            index = c('id', 'time'))
summary(model)

stargazer(model)

As you can see, both the model summary and the table displayed by stargazer would say that my number of observations is 10. However, is it not more correct to say that N = 5, since I have taken away the time element after with the first differences?

Arthur Carvalho Brito
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1 Answers1

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You are right about the number of observations. However, your code does not what you want it to do (a first differenced model).

If you want a first differenced model, switch the argument method to model (and delete argument effect because it does not make sense for a first differenced model):

model <-plm(Y ~ time*group, model = 'fd', data = dataset,
            index = c('id', 'time'))
summary(model)

## Oneway (individual) effect First-Difference Model
## 
## Call:
## plm(formula = Y ~ time * group, data = dataset, model = "fd", 
##     index = c("id", "time"))
## 
## Balanced Panel: n = 5, T = 2, N = 10
## Observations used in estimation: 5
## 
## Residuals:
##       Min.    1st Qu.     Median    3rd Qu.       Max. 
## -0.3067240 -0.0012185  0.0012185  0.1367080  0.1700160 
## [...]

In the summary output, you can see the number of observations in your original data (N=10) and the number of observations used in the FD model (5).

Helix123
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  • Thank you! I have seen that according to my code, plm would then would run a regression using the within estimator. That should give me the same results, right? – Arthur Carvalho Brito Oct 01 '17 at 21:43
  • In general: No. In yourcase: for only two time points, the within one-way individual estimator yields the same results as the first-difference estimator. However, in your example you request the two-way within estimator. – Helix123 Oct 01 '17 at 21:48