2.2. Estimation with Two Observations Per Person
When there are exactly two observations per person (t = 1, 2), estimation of the fixed effects model can be easily accomplished by OLS regression using difference scores for all the time-varying variables. The equations for the two time points are
Subtracting the first equation from the second, we get
Notice that both γzi and αi have been "differenced out" of the equation. Consequently, we cannot estimate γ, the coefficients for the time-invariant predictors. Nevertheless, this method completely ...
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