You want to determine the effect of earthquakes on the economy. You have a sample of 15 cities in the same country that spans 25 years. Of these 15 cities, 7 have been struck by major earthquakes during these 25 years. You run the following regression: GDP it= a_i + b_t + beta*Q_it + ejit where i represents the cities, t denotes years and Q it is a dummy that equals 1 if city i is hit by an earthquake in year t. What type of variables are the city fixed effects controlling for? What type of variables are the time fixed effects controlling for? Explain whether you should drop from your sample the 8 cities that did not experience an earthquake?

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