i) What does it mean to say that the fixed effect varies cross sectionally by not over time?

Linear Algebra: A Modern Introduction
4th Edition
ISBN:9781285463247
Author:David Poole
Publisher:David Poole
Chapter7: Distance And Approximation
Section7.3: Least Squares Approximation
Problem 31EQ
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Consider the following panel data regression for individuals. This regression is run to understand
the effect of marriage on wages for women in Rwanda. The data are collected for women
between the ages of 12-24, prime marrying years. These individuals are observed for four
periods (t) during this time in their lives.
Yit
= a + 8Mit + BXit + Yi + Eit
Let the outcome be their wage Yit observed in each of the 4 periods. M is an indicator (dummy
variable) that equals 1 if the woman is married and can change over time. Xit are a vector of time
variant observable control variables (for example number of children). The individual fixed
effect is yi and varies cross sectionally by not over time.
i) What does it mean to say that the fixed effect varies cross sectionally by not over time?
Transcribed Image Text:Consider the following panel data regression for individuals. This regression is run to understand the effect of marriage on wages for women in Rwanda. The data are collected for women between the ages of 12-24, prime marrying years. These individuals are observed for four periods (t) during this time in their lives. Yit = a + 8Mit + BXit + Yi + Eit Let the outcome be their wage Yit observed in each of the 4 periods. M is an indicator (dummy variable) that equals 1 if the woman is married and can change over time. Xit are a vector of time variant observable control variables (for example number of children). The individual fixed effect is yi and varies cross sectionally by not over time. i) What does it mean to say that the fixed effect varies cross sectionally by not over time?
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