Ismail writes,
Can you explain a little bit about Fixed Effects in panel regressions and when is it appropriate to use it- for example does it make sense to use it on this data set.
My reply (beyond that it’s funny to see a reference to an economics paper by someone named “Dollar”) is that it’s a good idea to model panel data using three error terms, at the unit, time, and unit*time levels. You can (and should) also have predictors at all three levels, as appropriate. Also I’m not a fan of the overloaded term “fixed effects,” but that’s another story. (Search this blog for more on the topic.)
It seems they ignore the random effects and then use a form of sandwich estimator to correct the standard errors for model misspecification. Using a more appropriate model seems more sensible, and random effects model would give some idea of the level of unobserved heterogeneity.