<p>You are allowed to mix differenced and undifferenced variables. Just because dependent variable is differenced does not mean all variables have to be.</p>
<p>Typically you difference variables because:</p>
<ul>
<li>level variables have unit root</li>
<li>you actually want to study differenced variables</li>
</ul>
<p>However, if a variable is stationary and you are interested in an effect of the variable on dependent variable then there is no reason to include it in first differences.</p>

CC BY-SA 4.0
2022-09-20T08:09:04.650Z
2022-09-20T08:09:04.650Z
1muflon1
<p>I am currently reading the <a href="https://christiandippel.com/DGH_nberwp.pdf" rel="nofollow noreferrer">Paper of Dippel et al. (2015)</a>, where the authors estimate the causal effect of imports on voting behavior in Germany. Therefore, they estimate the following first-difference specification, where Yit refers to electoral outcomes, NetExposure refers to import - export exposure, τtr are time-varying fixed effects and Xit is a of control variables:</p>
<p><a href="https://i.sstatic.net/y9c3T.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/y9c3T.png" alt="enter image description here" /></a></p>
<p>My question is why should I include &quot;undifferenced&quot; controls (Xit) in the first difference model?</p>
<p>Thank you in advance for any answers!</p>

<econometrics><paneldata><first-difference>
Why include start-of-period values in first difference estimation?
Lea Birm
# Why include start-of-period values in first difference estimation?

(Asked by: username_0 on 2022-09-20)

I am currently reading the [Paper of Dippel et al. (2015)](https://christiandippel.com/DGH_nberwp.pdf), where the authors estimate the causal effect of imports on voting behavior in Germany. Therefore, they estimate the following first-difference specification, where Yit refers to electoral outcomes, NetExposure refers to import - export exposure, τtr are time-varying fixed effects and Xit is a of control variables:

[![enter image description here](https://i.sstatic.net/y9c3T.png)](https://i.sstatic.net/y9c3T.png)

My question is why should I include "undifferenced" controls (Xit) in the first difference model?

Thank you in advance for any answers!

**Tags:** econometrics, paneldata, first-difference


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## 1 answers

### Answer by username_1 on 2022-09-20. Score: 0

You are allowed to mix differenced and undifferenced variables. Just because dependent variable is differenced does not mean all variables have to be.

Typically you difference variables because:

* level variables have unit root
* you actually want to study differenced variables

However, if a variable is stationary and you are interested in an effect of the variable on dependent variable then there is no reason to include it in first differences.


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