Feasible Generalised Least Square using Fixed Effects and Random Effects

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Anandita Rizki

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Jan 16, 2014, 5:46:27 PM1/16/14
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I was reading a paper about Free Trade Agreements impact on trade, here is the link http://www.aseancenter.org.tw/upload/files/OUTLOOK002_02.pdf. I have been contacting the author, but he wouldn't explain in detail. 

For instance, he use gravity model :

Log(Yit) = β0 + β1log(SGDPit) + β2log(RFACit) + β3log(SIMit) + β4log(Distancei) + β5log(Areai) + β6log(REERit) + αi + λt + FTA1it + FTA21it + FTA22it

Yit = real import from country i to j in year t
SGDPit = the sum of real GDP of country i and j in year t
RFACit = relative factor price between country i and j in year t
SIMit = degree of similarity (in terms of GDP) between county i and j in year t
REERit = Real Effective Exchange Rate between country i and j in year t
Distancei = distance from country i capital city to country j capital city (km).
Areai = area country i (km2)
FTA1it, FTA21it, FTA22it = Free Trade Agreements (FTA) dummy variables
αi = country effect, it captures country i's characteristics that affect trade between country i and j other than accounted for by other regressors.
λt = time effect, it captures other factors that affect country j trade with any country in period t.
µit = error term


The estimation is Feasible Generalized Least Square using fixed effects for country variable and random effects for time variable. Please, could anyone explain to me how to do this on STATA? I was confused since it is use a mix of fixed and random effects.
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