Question: The entity (dyad) fixed effects model can be represented by: Bilateral Trade = a + BAlliance + other variables + where a, captures the

The entity (dyad) fixed effects model can be represented by: Bilateral Trade = a + BAlliance + other variables + where a, captures the dyad fixed effect. Could a favorable trading geography (for example the countries are not divided by mountains) be captured by the dyad fixed effect? What about a history of commerce between the two countries? Explain briefly. Distance disappeared in the entity fixed effects regression. What is the reason for that? We see a large difference in the coefficient on Alliance in the entity fixed effects model and the pooled OLS. There can be many reasons we observe this. What is the common term used t hese reasons?

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