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In the following fixed-effects model, $EI$ is a dummy variable indicating an economic integration agreement in place between $i$ and $j$. $A$ is used to index the specific agreement an $i, j$ pair belongs to. $Y_{i,j}$ represents the volume of exports. Assume $A$ = {1,2,3}, meaning there are 3 different agreements in the sample. The goal is to obtain an average partial effect for each agreement in the sample ($\beta_{1, A}$).

$\begin{aligned} Y_{i j, t}= & \exp \left(\eta_{i, t}+\psi_{j, t}+\gamma_{{i j}}+\sum_A \beta_{1, A} E I_{i j, t}\right) \\ & +\varepsilon_{i j, t}\end{aligned}$

Fleshed out, the regression is as follows:

$\begin{aligned} Y_{i j, t}= & \exp \left(\eta_{i, t}+\psi_{j, t}+\gamma_{{i j}}+ \beta_{1, 1} E I_{i j, t}+ \beta_{1, 2} E I_{i j, t}+ \beta_{1, 3} E I_{i j, t}\right) \\ & +\varepsilon_{i j, t}\end{aligned}$

I am unsure how to obtain the specific partial effects. My initial thought was to run the regression for each $A$, but that does not appear to fit the above regression model -- furthermore, these regressions are not informative if $EI$ is time in-varying for a given $i, j$ pair. I was curious if using an interaction between $A$ and $EI$ would be useful, but I believe this is equivalent to running the regression for each individual $A$ and reporting the resulting coefficients.

My other thought is creating a dummy variable for each agreement in $A$. But even then, it is not clear how to proceed with this regression, since this would also require some interaction between the new dummy variable and $EI$.

It is not clear to me how separate $\beta_{1, A}$'s are achieved without some form of interaction of use of $A$ on the explanatory variable $EI$.

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    $\begingroup$ Welcome to Cross Validated! It might help if you fleshed out the summations. $A$ sums over what? $t$ sums over what? That forces you to think about it more and maybe solve the problem yourself, and it conveys more information for answer-writers. $\endgroup$
    – Dave
    Commented Sep 14, 2023 at 20:02
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    $\begingroup$ Thanks for your input Dave! I did add some extra information. Furthermore, I should note this is almost exactly the model I am working with from an old paper. I am unsure how $\beta$ is subscripted with $A$ when it appears as though the explanatory variables aren't actually any different from each other. $\endgroup$
    – ametricsb
    Commented Sep 14, 2023 at 20:11

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I would include three dummies (D1, D2, D3) that are 1 if that kind of agreement is on for pair ij at time t and 0 otherwise.

You can then calculate the marginal effect as a finite difference for 1 vs 0.

There are some subtleties with inference with dyadic/paired data. Take a look at the Robust Inference for Dyadic Data WP by Cameron and Miller. They have some Stata code for improved SEs.

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  • $\begingroup$ Thanks dimitriy! This was the route I was thinking of going. In this case, $EI$ is no longer necessary as a control variable, correct? This appears to go against the regression notation I have been looking at, but it doesn't seem to work any other way. $\endgroup$
    – ametricsb
    Commented Sep 15, 2023 at 13:57
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    $\begingroup$ I think your EIs and my Ds are the same, but I was not 100% certain. $\endgroup$
    – dimitriy
    Commented Sep 16, 2023 at 0:15
  • $\begingroup$ $EI$ = 1 in the case that the $i, j$ pair are in a (any) trade agreement. So then, your dummies should each specify a specific trade agreement. Does that sound right? $\endgroup$
    – ametricsb
    Commented Sep 16, 2023 at 13:36
  • $\begingroup$ Yes, that is correct. You had summationn or EI over A, so I assumed you dropped the subscript. $\endgroup$
    – dimitriy
    Commented Sep 16, 2023 at 20:33

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