Question: (a) Explain how fixed effects models are equivalent to an ordinary least squares regression with dummy variables. (b) How does the random effects model capture

(a) Explain how fixed effects models are equivalent to an ordinary least squares regression with dummy variables.

(b) How does the random effects model capture cross-sectional heterogeneity in the intercept term?

(c) What are the relative advantages and disadvantages of the fixed versus random effects specifications and how would you choose between them for application to a particular problem?

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