Using First Differences yit =x' B+C +et, observation for person i at time t Eliminating the heterogeneity yt=ytYt1=(Ax)+△c+△Et =(△x)B+ut Note: Time invariant variables become zero Time trend becomes the constant term Time dummy variables become(1, 0, 0...)Using First Differences Eliminating the heterogeneity it it i,t-1 it i it it it y = y -y = ( ) + c + ε = ( ) + u Note: Time invariant variables become zero Time trend becomes the constant term Time dummy variables become        x β x β (1,0,0...) it it i it y = +c + xβ ε , observation for person i at time t