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Explaining Fixed Effects: Random Effects Modeling of Time-Series Cross-Sectional and Panel Data
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This article challenges Fixed Effects (FE) modeling as the ‘default’ for time-series-cross-sectional and panel data. Understanding different within and between effects is crucial when choosing modeling strategies. The downside of Random Effects (RE) modeling—correlated lower-level covariates and higher-level residuals—is omitted-variable bias, solvable with Mundlak's (1978a) formulation. Consequently, RE can provide everything that FE promises and more, as confirmed by Monte-Carlo simulations, which additionally show problems with Plümper and Troeger's FE Vector Decomposition method when data are unbalanced. As well as incorporating time-invariant variables, RE models are readily extendable, with random coefficients, cross-level interactions and complex variance functions. We argue not simply for technical solutions to endogeneity, but for the substantive importance of context/heterogeneity, modeled using RE. The implications extend beyond political science to all multilevel datasets. However, omitted variables could still bias estimated higher-level variable effects; as with any model, care is required in interpretation.
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Metadata
- Authors
- Bell, A., & Jones, K.
- Venue
- Political Science Research and Methods
- Publisher
- Cambridge University Press (CUP)
- Published
- 2014-05-01
- Volume
- 3
- Issue
- 1
- Pages
- 133-153
- ISSN
- 2049-8470 (ISSN-L)
- 2049-8489
- OpenAlex
- W2118248224
- Cited by
- 1,515
- References
- 97
- FWCI
- 172.94
- Type
- journal article
- Language
- en
- Open access
- hybrid
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