When dealing with fixed effects, a de-meaned model approach is superior to the LSDV approach because the de-meaned model gives us more accurate coefficient estimates.

Question

Quizplus · Accepted Answer

Both the de-meaned model approach and the Least Squares Dummy Variable (LSDV) approach yield identical coefficient estimates for the variables of interest in fixed effects models; the choice between them is often based on computational convenience rather than accuracy of the estimates.

When Dealing with Fixed Effects, a De-Meaned Model Approach Is