The benefit of the de-meaned approach over the LSDV approach is:
A) It gives more accurate coefficient estimates.
B) The coefficient estimates have a lower standard error.
C) Easier to implement if there are a lot of different units.
D) We will be able to estimate coefficients on variables that do not vary within unit.

Question

Quizplus · Accepted Answer

The de-meaned approach, also known as the Fixed Effects or Within Estimator, is easier to implement when there are many different units (e.g., individuals, companies, countries) because it does not require creating a dummy variable for each unit, which can be cumbersome when the number of units is large. This approach involves subtracting the mean of each variable within each unit from the observed values, effectively controlling for all time-invariant differences between units.

The Benefit of the De-Meaned Approach Over the LSDV Approach